20221120-205750hurricane-ian-legacy

It's Not Too Early To Start Preparing Your Association For The Next Big One

Alan Tanenbaum, Esq.:

So I'm Alan Tanenbaum, and I'm here with my partner Jon Lemole. Cindy Hill, who is our third got called away at an emergency meeting. So you're just going to be hearing from Jon and myself today. And the subject of today's episode is Hurricane Ian's Legacy: It's Not Too Early To Start Preparing Your Association For The Next Big One. So we've got a lot of calls in the last few weeks. We're currently in Osprey, Florida, which is in the mid to southern part of Sarasota County. We've been hearing a lot from groups to the south of us in various stage of distress.

We heard their immediate issues and prize for help. We have been helping them work through their hurricane claims, their issues with their owners, a lot of confusion and a lot of stress. And we are pretty attuned to procedures and processes for groups that have done well in the face of enormous problems and groups that are not handling their issues quite as well. And we've developed this program today, which is to provide some tips for all associations based upon our experience in the last few weeks about things that probably should be cleaned up now, procedures that should be adopted now thinking that should be done at this juncture. So, Jon, if you can go to that first slide.

I'm not sure which storm this was. I think this was, yes, this was the recent one. And if you recall, when the storm was north of South America and south of the island, we were all under a threat. Nobody knew exactly where the storm was going to hit. And based upon the projections of the last couple of days, they really blew the forecast pretty substantially. I can recall a couple days before the storm hit in southwest Florida, one of the main predictions was it was going to be a category one storm hitting in the Tallahassee panhandle area. And what happened obviously is while it was a much stronger storm and stronger than they predicted, it made its turn to the east and surprised a lot of people in Collier Lee and Charlotte counties especially who many of whom were not prepared for what occurred. But one of the first things that we're going to talk about are the documents.

So with condos it's pretty basic. Under the statute it's pretty well defined what are common elements, there's some confusion about limited common elements and for some groups, but it's pretty obvious that the association for the most part is responsible for the common elements. The owners are responsible for their interiors from basically the drywall inward. Sometimes where there's some confusion after storm is whether there's interior unit damage, who's responsible to do the immediate cleanup, who needs to get in there and do the dry in, and so forth. I think what most condo associations do is despite what the documents say, they may get a remediation contractor in right away to do the dry out and then work on the common element issues. That's not the larger problem. The larger problem is in the world of multi-family homeowner associations talking about villas, duplexes, triplexes, and quads.

A really big problem. Number one, there's confusion about what a villa or a duplex owner or a quad owner is responsible for. Some of the documents look like condo documents where the associate, where the HOA is responsible for everything in a multi-family unit other than what's from the drywall in. Some of them have very little maintenance responsibility for exteriors. Maybe it says that the associational paint, maybe the association will be doing roof maintenance but not replacement. But there's HOA owners who do not understand those distinctions. So one of the things that could be done is really educate your owners on what those lines of distinctions are because there's a lot of confusion out there. And we recommend, and we have given presentations on this, consider amending your documents to create an intelligent maintenance and repair protocol. We have properties where there are six duplexes with a roof that spans all six units and the replacement of the roof is responsibility of the individual lot owner and the roof is destroyed across all six.

There's six insurance adjusters adjusting that claim. Maybe one of the homeowners doesn't even have insurance, maybe one of the homeowners is on a safari in Africa and not even contactable, maybe one of the homes is in an estate. How six individuals can make a decision about how they're going to replace an element is going to be going to be very difficult. And in a hurricane situation, the documents have created mass confusion. So our first point is if you're an HOA and there's any portion of your property which is multi-family and I'm including duplexes in that, think about logically from an insurability standpoint and a maintenance or repair standpoint, what's the best way to organize the maintenance and repairs so that especially at a crisis, things can be taken care of and make those adjustments by way of amendment.

And the second part is really the education, which is, I mean, we're confronting board members who don't understand their documents as far as where the line of demarcation is between the association and an owner as far as prepare who calls out the insurance adjuster, what does each of them cover? And whether it's in writing, whether it's at meetings, it's really important for the board to educate their owners because we have board members who in the face of the very difficult circumstances are dealing with basic confusion on the part of their membership about who's responsible for what. And those things need to be cleared up. So Jon, I'm going to turn it over to you. Is your association adequately insured? Why is that an issue?

Jon Lemole, Esq.:

Well, apart from the obvious, to touch on something that Alan was just saying about confusion among owners as to who's responsible for what, I think we find often that a lot of people don't understand exactly what's covered under the association's policies and in particular, unit owners or lot owners may have the biggest misunderstanding or misimpressions as to what may or may not be covered. And so that creates a lot of conflict and confusion. And so one of the most basic things that I think any association can do is to the extent that you can do that, educating your members about what might or might not be covered in a storm, what are the limits of coverage on the association's policies, what's covered in a hurricane event, what's not covered in a hurricane event? So those basic things are not a mystery to everybody. And in fact, often we see board members that may not know exactly what their insurance policies say.

So, for Ian, and in the wake of Ian, some of the biggest challenges we've seen are questions relating to coverage for water intrusion. And as a general proposition, hurricane insurance will cover water intrusion if the water intrusion is a result of storm damage. But you're all familiar with the idea of the storm having to create an opening in the building through which rain enters. Well, there's a lot of communities that weren't necessarily impacted that way and I'm going to talk about an extreme example of that in the next section that I take on, which is correcting building vulnerabilities. But associations need to understand and appreciate what water cover damage may be covered versus what water damage may not be covered because you don't want to find out after the event and have this rude awakening that some of this damage may not be fall under your insurance policies and it's going to be something that the association needs to take on.

Apart from that, there's just some generally good insurance practices that everybody on this presentation should be thinking about. Understand your deductibles. You may have great insurance and you may have a covered loss, but if the damage doesn't exceed your deductibles, again, that's another area where the association would have to appreciate what its potential financial responsibilities are after a big storm. And if you haven't discussed that and you don't have a contingency plan for that, that's going to be a big problem. So appreciating the financial or the potential financial burden of meeting deductibles should definitely factor into decisions around adequate storm contingencies. Another example is ensuring that your insurance covers up to date replacement costs. So obtain periodic insurance appraisals so you can ensure that your replacement coverage will be adequate. Finally, look, every renewal period, there's a couple of things that are going on. First of all, for those of you that just went through recently went through a renewal period, there's a huge surprise, right, because premiums went up drastically.

And some of you may have found that you weren't renewed because your carriers just not renewing certain policies in the state of Florida. But how can you impact that? I mean there are certain things that market forces that you're just not going to be able to influence to deal with or influence. But there are certain things that you can do to give your association a leg up. So this is an opportunity to be in the best position to continue to be offered insurance at as reasonable rates as you can get in consideration of the current market. So things like staying on top of maintenance and repair obligations and documenting those so that your carrier knows during renewal time that your buildings have been adequately maintained, well maintained. Believe it or not, one of the beneficial aspects that we've been talking about with regard to the safety legislation, the recent safety legislation in condo world is that this is an opportunity for buildings and condominiums that have buildings in good shape to demonstrate to their carriers with these milestone reports that, hey, our buildings are in good shape so we're a good risk.

So, when I've been talking to associations and they're upset about wondering why or how or when they're going to do these milestone inspections, and my gosh, the cost of this is going to be a burden, maybe turn that discussion and especially with your members, turn that discussion around or on its head and say, look, this is an opportunity to spend some money now, if we know that our buildings are in good shape and they've been well taken care of, this is a good opportunity for us now to spend this money, not wait because we've got a very difficult insurance market and if we've got a positive milestone report, certainly that's going to help us save money when it comes time to renew our property and casualty insurance.

So these are all just things that keep in the back of your mind that the more you document the condition of your buildings, the good condition of your buildings, you keep those buildings in good condition, that's going to provide you with the best coverage at the most affordable rates that the market can offer to you. So all of those things will put you in good stead for the next time something hits. And as I said at the beginning of this, communicate with your members so that they know that, and they have an understanding of what those policies cover as well.

Alan Tanenbaum, Esq.:

Jon, a couple points. Obviously, the flood insurance is going to cover the storm surges. Your liability and property coverage has more to do with the impact of wind and wind driven rain. So don't get those confused. Both are very necessary to have the coverages. And the first thing that the wind policies argue in defense is that it was a water and a storm surge event, it wasn't a wind event. And then the store federal flood insurance program will sometimes contend that it was a wind event and not a storm surge event. The storm surge insurance is somewhat a limited coverage, so you may have much more damage than that coverage is going to cover. Be aware of code requirements. So if a portion of a building is destroyed, the building department's going to require that you rebuild according to current code.

So if you have a condominium property where a lot of windows are blown out and you had older style windows, the replacement is going to have to be with the current hurricane resistant windows, which are much more expensive than your original configuration. So you need to have the coverage that will cover code requirements for new construction. And then obviously construction costs have gone up enormously. So if you're basing your amount of coverage based upon somebody who determined replacement costs five years ago, you're going to be way out of whack on the amount of coverage that you have. So be aware of that. Jon, let's go to the next slide, which is vendor relationships.

So needless to say, there's an extreme amount of competition right now to get capable remediators and remediation companies out to properties. If anyone noticed, and I'm sure it's much worse in Southwest Florida, I mean the amount of time that even a refuse, be it organic or otherwise, it takes for that to be all collected. You're talking about contractors that were way overburdened, and any of the remediation contractors have incredible burden right now. So what some of the remediation contractors offer is the opportunity for an ongoing relationship. So you sign onto their program and first of all they'll do an inspection of your property to assist you with locating vulnerabilities, things that you may be able to correct in the interim. They know your units, they inspect your units, they know your property, and they will assist in documenting before storm what the issues are. But probably the more important aspect of their programs is they're now a preferred customer.

So when the storm comes, you are on their list of properties, number one, that they'll come out and potentially on their own and see how you fared. And then if they have a hundred groups that are calling them for service and you happen to be among the 30 that are on their program, they are going to give a priority to you. So have those relationships in advance. I mean, for buildings that have roofs, you should already have a relationship with the roofing company that's potentially doing your annual inspections, but you have an opportunity during the quiet time to have your list of preferred vendors. Certainly the management companies fulfill that role, and make the relationships that you're going to need in advance because if the storm comes your way next time, you're going to want the people that you're able to call and assist.

So the planning is, okay, if come next season, and I'm presuming that there's not going to be another store this season, but come next season, if a storm impacts our area like Southwest Florida was impacted this time, who are we going to call? Who do we have relationships with that are going to help us out of a major mess? And you should know who those people are, who the companies are, have the conversations, get educated on the process. Because if you're trying to do that in the midst of a crisis, obviously it's a lot more difficult. So Jon is going to talk about correcting, building and site vulnerabilities.

Jon Lemole, Esq.:

So, again, another fairly obvious thing to think about is understanding where your buildings and your site may be vulnerable to a big storm. It's not always easy to implement that though in practice. I'll give you an extreme example because this came up, this is real world stuff that we've been dealing with in our office, for example. Our firm is aware of some newer condo communities with buildings that were built with these off ridge vents. So these are attic ventilation, but they're not at the peak of the roof, they're kind of like a little bit down from the peak of the roof and it's almost like a long cover that provides the venting.

And what happened in Ian is that these vents ended up and now there was no other damage that was done by the wind or the storm, but what happened is the rain ended up going right through these vents, and I'm aware of a couple of communities where that's created a significant amount of water damage into the units inside those buildings. And that's been a real problem for these communities because of the questions about whether that's covered or not, number one. Number two, what is the association now going to have to do in terms of repairing or contributing to repairs for those units because this was a water intrusion that came through and these are condos that came through a common element in the building.

So, I'm not saying that this would have been discovered, but this is an example of a situation where if you had, or this community had done, for example a turnover, these are newer communities, if they had done a turn turnover of engineering inspection, that condition may have been found and it's correctable, at least I'm told by engineers and contractors that it's correctable. The other part of it is if it were found, it's probably a potential designer construction defect, which arguably you would have a claim back to the developer and the builder for. And so you could have dealt with that, not only understood it, discovered it, but dealt with it and perhaps obtained money back in order to correct that condition. So that's just one example of understanding the vulnerabilities in your building that may not have been obvious. I mean we can walk around our communities and say, oh, we've got some obvious things that we ought to take care of.

Everybody does that during a storm, but there may be some things that you're just not aware of. And so frequent periodically it's a good thing to just have somebody come in, a professional, do a checkup of your buildings even if you're not in under safety legislation. A periodic inspection of where your buildings may be vulnerable to a big storm event is a good thing. What are some other areas? Because we tend to think in our communities of our buildings, but we don't always think about our site conditions. Is your community itself, the neighborhood, the site, is it well prepared for the massive amount of rain and storm water drainage that it will need to handle in an event like Hurricane Ian? So take a look at your drainage ditches and your swells and your retention ponds and other retention structures.

If they're not well maintained, you may not realize because in a normal storm event they're okay, but because they haven't been well maintained in a big storm event with a massive amount of water, even if you're not in a flood zone and you don't have flood storm surge, you may have surface flooding because you haven't stayed on top of controlling erosion into your ditches and swales and stuff that gets into the drainage systems, the underground.

And so those are all an opportunity to look at your drainage maintenance program and make sure that those drainage systems are in good order. And then there's just obvious things mean how many fences did we see blown down in the storm? And I'm not even talking, I'm talking about Sarasota and Manatee County, I mean fences were down all over the place. So take a look at your fences. Are they in good repair? Trees? You may not be able to stop a tree from falling over and being blown over, but a lot of branches came down, big branches came down on trees. Are those trees clear of your buildings? If a branch falls, is it going to fall on a roof and impact that building or some other common element structure? There are things you can do landscaping wise to make sure that the damage or the loss that's probably going to occur in the storm will where you can minimize the impact as much as possible to your buildings.

So these are all just basic maintenance issues. They're sometimes overlooked, you set it and forget it or add a sight out of mind, but a storm like this is a good opportunity for you to take stock in your communities. Go around before the next one comes and say, okay, have we been proactive about maintaining areas of our property, of our site that can be potential issues if we have another big storm. And I think we're going back to Alan who's going to talk about maintaining effective communications when communications otherwise have otherwise significantly broken down or are impossible.

Alan Tanenbaum, Esq.:

Yeah, what are the things to that, to Jon's point, as horrendous as the conditions in southwest Florida were, there's a tremendous body of information that has been developed. So when you see boats that are piled up, is there a better way to attach boats to protect boats? So that type of damage doesn't occur. And there're all kinds of studies now of buildings, how they subsisted during the storm, what did well and what didn't well. So just pay attention to the literature that's going to come out and the studies that are going to come out because every storm we learn a lot. This particular storm, number one, it was a very powerful storm as far as a wind forces were concerned. It moved very slowly, so you had sustained hurricane force winds for a much longer time than may have been for a typical storm.

It's also the path that it took where the storm surge was at its greatest. So there's a tremendous amount of lessons learned in a body of information that will be developed and study that and think, well, if that came to our community, what are the things that we could do now so that we could at least mitigate some of that damage. Jon, if you can go on to communications. So days after the storm, people were still being looked for, lost cell phone communications, couldn't contact people, were they even in the state of Florida? Had they left? Really a massive effort to find people. Owners could not find their board. Some of the management companies were down, board members couldn't find their managers.

So it's a huge challenge. But years ago, what we did as a law firm is we established a line of communication with a law firm or law firms on the east coast of Florida. And here was our arrangement. If the big one hits the east coast, you can have all of your clients, all and your management and so forth, contact us over here on the West coast and we will be the repository of communications because yours have been taken out of service. And we had the same arrangement in case form hit over here.

But if you think about it, the same arrangements can be made for condo and homeowner associations that if communications get knocked out, internet gets knocked out, that there is a fail stay, a place where any owner can contact who is out of the area and where they can expect that a communication is going to get through. So set does networks in advance so that if an owner in a southwest Florida property in this particular storm wanted to find a board member, it hasn't had a means of making contact with somebody in order to do that, certainly the owners need to know email addresses and phone numbers for people who they may need to contact. You need to know where your owners are. There are groups that did not actually know who was in residence at their community when the storm hit. So that's obviously a really important and set up mechanisms so that you know, knew who left town and who you would need to check on.

All those things have to be thought of in advance. And obviously information on how to make contact. And again, to have some sort of a network, and I'm sure there are people who are much more technologically adept than I am of establishing an out of area contact that individual owners or board members and so forth can contact. I think the management companies did a pretty good job of establishing groups that they can call so that their board members can be reached. But communication was a real serious problem. Jon, why don't you talk about access to emergency funds?

Jon Lemole, Esq.:

Yes, I just wanted to add one couple thought on the communication issue. Look, in Lee County and Collier County's, property managers were affected, lawyers were affected just as much as owners of condo unit owners and town homeowners. So, one of the things that I would advocate for, and as Alan said, management companies probably are doing this already, but it's really an opportunity now for the managers and their clients to sit down together and understand, okay, if we can't reach you, who's the backup? Who do we go to? What's the management company's contingency plan? What is your general counsel's contingency plan? Alan touched on that a little bit. Frankly, we had lawyers in Lee County who our office was assisting with helping their clients because they just didn't have the ability to do it. These lawyers were struggling with their own losses and in inability, no phone service, no cell phone service, no whatever.

And so we knew that and where we could, we pitched in and helped. But the takeaway here is be talking to those folks that help you manage your community, your management companies and your lawyers and understand where can you go if you can't reach them, if the communication has completely broken down, because you're going to have questions, you're going to need to talk to somebody. And so just know that beforehand. Now onto access to emergency funds. There's going to be in the immediate aftermath of a storm, things that need to get done, safety conditions are going to need to be dealt with.

Temporary emergency measures are going to need to be taken in order to prevent further damage, to mitigate losses is, but water removal companies are going to be very active and they're going to need to be brought in. Gaps in the roof are going to need to be fixed so that you don't have continued water coming in if it continues to rain after the storms. And you may not be able to have those conversations with your insurance carrier right away in order to figure out where you stand in all of this. If you haven't adequately planned for access to funds, that's going to be a pretty big burden for your community. So one of the things that communities can do, and I know that a lot of communities, they think about borrowing money as a bad thing, but having a line of credit available in these situations is something that I think every association should consider. You may not use it, but it's there and you have the ability to write some checks that desperately need to be written.

One of the other things that you can do, like look, communities do emergency management planning. When I say communities, I mean municipalities, right? Every municipality has an emergency management plan where your communities should have an emergency management plan as well. So you probably all realize or recognize that before most major storms, the governor issues an emergency order, which suspends compliance with a lot of requirements. And typically one of the things that gets suspended is your association's responsibility to strictly comply with rules and regulations and statutes that impact board decision-making. And so that's an opportunity for you folks to have a conversation ahead of time as to, okay, who's got authority in this community to make some emergency decisions, to write checks, to secure needed urgent work in the community? Who, who's going to be the person or people that do that? And again, that gets back to what Alan was saying earlier, you may have people, board members who are not there.

And so you need to know that. And you need to know what is the mechanism that the people who are here on the ground, the directors that are here on the ground can make these decisions and amongst themselves. Or maybe it's just one person who you're vesting with that ability to do that. But you've got to have those lines drawn clearly so that there's no confusion. And then after the fact, nobody's pointing fingers at why this was done or who did this. You've got to empower certain people in your community to be able to respond to these things when the means of communication may not be available for group decision-making and collective deliberation on those issues. So lines of credit and emergency management plan, just like municipalities do, is definitely a good thing. And then I think the last thing that we're going to talk about before answering some questions is dealing with first party insurance claims and repairs. This has been a really, really big area of contention in the aftermath of the storm. So, Alan is going to talk about that.

Alan Tanenbaum, Esq.:

Not very happy right now with the remediation industry and the public adjusting industry, we're really seeing horror stories on a day to day basis. And I hope I don't offend anybody here who's been a public adjuster, but we're saying some of the old problems come back again. So what's a public adjuster? A public adjuster is a company that has experience in adjusting insurance claims. They typically operate on a contingency basis. The contingencies are usually between 10 and 20%. So they come to your community and they in the aftermath of a storm and they say, look, we will get contractors in to document the damages. We will refer you to remediation contractors and we will make the claim with your insurance company. We'll get your insurance company out. And at the end of the day there will be a number that will be presented to the insurance company to cover your claim.

And usually a joint check will be issued and the public adjuster will take 10 to 20% of the overall claim. The incentive of a public adjuster is to increase the claim to its maximum, and obviously if you're on a percentage basis, that will mean the maximum financial recovery. Now, what does a public adjuster not do? First of all, a public adjuster generally won't scour your documents to see what the appropriate line of demarcation is between association responsibility and owner responsibility. So don't look at them as legal advisors who are going to make those distinctions. If they could include what should be owner claims against an owner's own policy in their claim, they will do so. Because again, it's going to increase the ultimate amount of their claim. So be sure you get independent legal advice, understanding your documents when you're working with a public adjuster so that they don't cross boundaries that are inappropriate.

So what's the immediate need? You need to stop water getting into your building. So there'll be roofers coming out and companies that coming out will do the roof tarping. We've seen that. There's good roof tarping, there's bad roof tarping. So you should have somebody knowledgeable making sure that the tarping that's done is appropriate. There needs to be appropriate dry out. So you need to get a company into and to do that. Your insurance company may give you some interim money to take care of things like that because it reduces their loss. But we've seen some real oddities where these remediation companies come in, the roof is tart and they're doing more than dry out. They're ripping out drywall, they're replacing drywall. It doesn't make a lot of sense in most cases to replace drywall when the roof hasn't been a permanent roof, hasn't been installed.

We've seen remediation contractors who just go around the community knocking on doors saying, I'm here to fix your drywall without having any contractor, any authority to do so. That's happening all over. That process has to be gain control over. One of the problems in a storm is that everybody wants everything fixed as quickly as possible and get the community back in operation. But it doesn't suspend the association's obligation either in HOA or a condo to make sure that repairs are administered in an appropriate fashion. So what happens in Florida, unfortunately it's happening now, is contractors are coming in from all over the country. They have flooded southwest Florida, many of them are not licensed in Florida.

Many of them are doing repairs that are outside the scope of their competence. Many are not seeking building permits for work that does require a building permit. So the rules about good contracting are not suspended during a hurricane. And we've included here some tips, you can go back through them, but you need a vet who's coming to your property, even under emergency circumstances. You need to have an appropriate contract with them. You need to have third party supervision of the work that they're doing. Will you be able to meet all the conditions for good repair protocol? Probably not. But we're saying instances where there's really no implementation of proper procedures contracting and so forth as an entity who's working on your property, are they insured?

Did they give you a certificate of insurance? We have people who show up, they have FEMA badges on, they're not with FEMA. There're all kinds of schemes and scams going on that you have to get control of. Now, one of the problem, we have villa communities where again, these folks are going door to door. They may be even telling them that they have the authority of the board of directors to be going in their unit. Well, maybe not, but who's watching this contractor as they're in a unit from issues like theft. I've seen some very loose criteria there. Who's watching what they're doing is, are they doing the work that's appropriate? Are they doing it correctly?

And again, very concerning when they're not under contract, they're just flowing into the buildings and doing repairs. And again, what they're looking for is, well, the insurance company's going to pay us, so they operate even without a contract. So there has to be a communication with the owners. And again, this is part of the advanced protocol, which is to let the owners know that in a case of a storm, this is what they're responsible this for. This is what the association's responsible for, this is who you should be opening your door for and who you should not.

Because if a storm occurs and somebody knocks on your door and they say they're authorized by the board to come in and do repairs, we have a whole group of owners in one community who contacted us and said, we have this contractor coming into our units and we don't even have damaged drywall in many of these units, and they're ripping the drywall out. Again, that's a company that is looking for some short-term profit to take advantage of the circumstances that exist. And it's really unfortunate. So, Jon, if you go to the next slide, I think there's another slide.

Yeah, here's some of the warning signs. You get people showing up FEMA badges who are not with FEMA. They have a fancy jacket on. Unsolicited offer of services. I don't know how many groups where a roofer has, this is during non-hurricane. A roofer shows up and says, I've noticed that there's some tile slippage here. You could have an insurance claim, best not to contract with them. Upfront payment. Not such an issue now. But if you hear that, that's a sign. And they're saying that they work with insurance companies and so forth, kind of being worried about that.

But again, the same processes at good times, which is having a good contract, knowing who you're dealing with, making sure they're licensed, making sure they've secured the appropriate permits, having third-party supervision, all those things even in a hurricane situation where the repairs being done, all those protocols should be in place. Now our bias is if it's a significant claim to hire a first party insurance lawyer, they're going to be more sensitive to the document restrictions on who's responsible for what. They will get the same remediation contractors in, but under better control. And in the end, hiring a first party lawyer is not going to cost the association anymore than dealing with a public adjuster, except you have a lawyer on your team versus a public adjuster who, some of them are good, but again, their accentuation or their attitude is really to increase, in most cases the amount of the claim to a maximum.

We had a situation where a group was ready to re-roof all of its roofs, had a contract for it, public adjuster came in after the storm and they tried to elbow the roofer out of the contract to say, and told them that we could get a lot more money from the insurance company than you were already contracted to pay, which was insurance fraud right up front that they didn't seem to have any problems admitting to. So really the key is to keep your protocols in place as best as possible for good relations with contractors and be aware of some of the unfortunate things that are going on in the industry. Jon, I think we can cover some questions at this point. There's a question, a little bit off topic, but about skipping the normal reserve study and go for the surge. What would you say about that?

Jon Lemole, Esq.:

I'm sorry, I'm looking for the question. What is the question?

Alan Tanenbaum, Esq.:

First question, would it be advisable to skip the normal reserve study and go for the serves?

Jon Lemole, Esq.:

Well, if you have to do a surge, just do the serves. I think at this point, because first of all, getting it done in a timely fashion, although it may seem like the deadline for that is a little ways away, these companies are very over stressed right now, scheduling them is difficult. It may be a while before they can get there. The engineers are really stretched thin. So you got to factor all of that in. So it's really a hard question to answer because it may be a while before you can get the surgery report done. And so then do you have to make some reserve decisions and so do you get an interim report? Or do you just work on getting the services done now? I mean, financially, I don't necessarily see a reason for spending money twice, because you're going to have to do that report anyway at some point if you're under that regime based on your building height. So I think that's really more of a financial question. Do we want to have two reports instead of one?

Alan Tanenbaum, Esq.:

Yeah, it's unfortunate. A lot of the reserve study companies are seven, eight, nine months out, maybe longer. So if you're starting now to do your budget for next year and you haven't gotten your reserve study done, you're going to have to figure out a way to calculate those reserves because you're not going to get a report within a month for your budget process. There's a question for communities that are in the middle of the inspections and the repair scopes, how would you recommend handling the conversations with the carriers during the bidding process? A very difficult question. Any conversation with an insurance carrier right now is a tenuous one.

You're lucky enough to establish coverage. I don't know what the insurance companies are asking by way of documentation. There are insurance companies that they've notified their underwriters to write as little as coverage in Florida as possible. So they're looking for reasons to reject you. So I'm not sure what you're going to tell them. I think in any other insurance situation, what you're trying to convince the insurance company is that you're a good rest. So certainly telling them that you're getting all the inspections done, you're meeting the statutory requirements, the association tends to repair the buildings to make them serviceable. Should make your insurance company feel a little bit better about ensuring your particular risk. There's a question about ordinance or law coverage, yes, that's necessary. That will cover an instance such as the code has changed and you have a replacement cost that's increased as a result of an order by the building department that you have to meet the current building code law and ordinance coverage will cover that. I think it's a good coverage to purchase, usually not that expensive.

There's a question in a multi-family multi-story building, how to determine when wind blow water damage to a unit is the responsibility of the owner and when it is the responsibility of the building. All right, I'm presuming this is a condo situation. So here's our typical response. No matter what the source of water, if there's interior unit damage, the homeowner or the condo owner should be advised to make a claim against their own carrier for that interior damage. And if that carrier wants to subrogate against the association's carrier, it can do so. The key, what the association's policy, condo associations policy is covering is typically damage to the common elements. And that's really what the claim should be. Now, some of them will carry some cover cemetery damage, but in every instance we would advise that the owner for any interior damage do their own repairs.

The other problem with that claim coming through the association is how is it adjusted? The board of directors and management don't want to be in the business of determining on a unit by unit basis how much of an insurance claim an owner's going to be entitled to and certainly doesn't want to be in the business of contracting for interior repairs beyond dry out because then you're going to have potential years of dispute over the adequacy of the work, did they get the finishes that they desired it? It's very problematic. So let the owners deal with their interior issues beyond dry out, which may be good to handle from an association standpoint. But let the owners make a claim against their own carriers for that interior damage and undertake the corrections with what they're able to recover. There will be a transcript and Michelle has already responded to that.

So let me see. I think somebody asked an esoteric insurance question. Differentiating between actual cash value versus replacement cost coverage. And Kirk, you had to go and answer a question that I don't have a specific answer to. Replacement cost coverage sounds like a policy that says whatever the actual cost bid for the work is what you're covered for, whereas actual cash value is a stated amount and even if it ended up costing you significantly greater than that, that's the limit of your policy. But that's what those words seem to me. But I could be corrected by somebody who's an expert on insurance jargon. Jon, do you have any closing thoughts?

Jon Lemole, Esq.:

When you know a storm is coming, prepare your community for the fact that there may be repairs that need to be done for a while and the community may not look very good. That's a thing I keep hearing from folks that we represent, is that the residents are getting really upset at seeing these tarps. When can we fix the tarps? When can we fix the roof? And it's a stressful enough situation to have to deal with the storm. Owners are confused, they don't exactly know what's going on. They get frustrated, they vent their frustration at management, they vent their frustration at directors, and you all sit there and say, well, there's really nothing we can do about it right now. And so it's probably a good idea before the storm to say to your folks, look, we don't know what's going to happen here, but if something does happen, we may be dealing with it for a while and you have to be patient with us as we work through the issues of insurance coverage, paying for it, paying for it at competitive rates, dealing with reputable contractors who are available.

And understand that you are going to see a lot of contractors come this community who may not be reputable. So don't assume that we're just not doing work. We may not be selecting folks that because they're available, they're available for a reason as opposed to reputable folks who may not be immediately available. It's just transparency, good communication.

Alan Tanenbaum, Esq.:

The thing I have to offer in closing, I've been around long enough to remember that we used to have civil defense drills. I was around long enough to remember when they said, look, if there's a nuclear blast, they were teaching the students to get under the desk would do any good anyway. But civil defense training is preparing a population by practicing. So it's a good thought, which is, okay, it's November, and there probably will not be a hurricane again until May or June of next year. And have a session within the next couple of months where you run through with the board and potentially the owners of what if we recreate the situation that occurred in southwest Florida that happens to our property? What are we going to do? Who do we know? Who do we contact? What education needs to occur? What are all of our protocols? And get them set now. And learn from the experiences of all the folks in who and the studies that are going to be coming out of this particular storm and use that body of knowledge in order to do some great planning.

That's what I'll leave everyone with. And somebody named Diane Shapiro has put in a very great comment to close on, which is anyone could register for CERT training, Community Emergency Response Team, and anyone who needs that information, we will get it from Diane and supply it to you. There's Diane, she even put her email address. So, dianeshapiro93yahoo.com has anticipated what we were going to say today and already knows of a program that offers training for community emergency response. So thank you Diane. So we're going to say goodbye at this point. Thanks for coming on. We're going to have another presentation next month. Any other questions that anyone has, you can send them to us, and we will provide a response. So we will see everybody next month. Thank you.

Jon Lemole, Esq.:

Thank you.

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A Quick-Reference Guide to Complying with Florida’s New Condo Safety and Reserve Funding Legislation

The recent Florida condominium safety and reserve funding legislation has proved to be a source of confusion for many Florida condominium associations. The stakes are high now that these statutes have taken effect as of July 1, 2022. For many condominium associations the clock is now ticking, and the professionals required to perform the new safety and reserve inspections are in very short supply. With that in mind, Tannenbaum Lemole & Hill has prepared a simplified "quick-reference" guide for directors and managers. As always, we recommend that boards and managers ultimately consult with association general counsel to ensure proper compliance with the new laws.

Milestone Structural Safety Inspection

What is it: A visual inspection of a condominium building for evidence of "substantial structural deterioration."
By: A Florida licensed engineer or architect
For:Each condominium building three-stories or higher
What's a "Story":Includes underground and/or ground floor covered parking levels.  Lofts and mezzanine levels may be included if defined as a "story" under the Florida Building Code.  Best to have an engineer or architect make that determination.
What's Inspected:For any building three-stories or higher, at a minimum a Phase 1 visual inspection of the habitable and non-habitable areas for evidence of "substantial structural deterioration."  If "substantial structural deterioration" is found, a Phase 2 inspection (which may include destructive testing) and report will be required outlining the nature of the structural defects, whether the defects pose an unsafe or dangerous condition, and the professional's recommendations for remediating the defects.
When Due:Phase 1 reporting due by December 31 of the year in which the covered building reaches 30 years of age, measured from the date of issuance of the certificate of occupancy.  For buildings within three miles of a "coastline," the deadline is shortened to 25 years.  Buildings completed prior to July 1, 1992 have a grace period until December 31, 2024 to obtain a Phase 1 Milestone Inspection report.
Frequency:Every 10 years commencing with the initial Milestone Inspections.
Report Disclosure:Every unit owner must get a copy, and it must be posted on the property.  If the condo is required to maintain a website, then it must be posted on the website.  The report must be maintained in the official records for 15 years.

Structural Integrity Reserve Study (SIRS)
What is it:A completely separate inspection and report from the Milestone Structural Safety Inspection.  Its purpose is to define recommended reserves for replacement or deferred maintenance of certain "common areas" as set forth in Fla. Stat. 718.112(2)(g)
By:Must include a visual inspection of the "common areas" by a Florida licensed engineer or architect.  Actual reserve funding calculations can be made by someone who is not an engineer or architect.
For:Each condominium building three-stories or higher.
What's a "Story":Same definition as for Milestone Inspection.
What's Inspected:For any building three-stories or higher, a visual inspection of the "common areas" to establish their remaining useful life, the estimated replacement cost or deferred maintenance expense, and a recommended annual reserve amount for the "common area."  At a minimum, the SIRS must include a study of: roof, load-bearing walls or other primary structural members, floor, foundation, fireproofing and fire protection systems, plumbing, electrical systems, waterproofing and exterior paint, windows, and any other item that has a deferred maintenance or replacement expense that exceeds $10,000.00 and the failure to replace or maintain such item will negatively affect the other reserve items required to be included in the SIRS, as determined by the engineer or architect.**
When Due:Effective July 1, 2022, by developers prior to turnover.  For owner-controlled associations which turned over prior to July 1, 2022, the first SIRS is due by December 31, 2024.
Frequency:Every 10 years commencing with the initial SIRS
Report Disclosure:Maintained in official records for 15 years.  If the condo is required to maintain a website, the SIRS must be posted on the website.

** Note – The original reserve funding language remains in the statute too. That section, 718.112(f)(2)(a), requires, among others, paving reserves and reserves for any item having a deferred maintenance or replacement cost that exceeds $10,000.00. Therefore, it is currently ambiguous as to whether reserves are now required for any item exceeding $10,000.00, or only if the item, in addition, would negatively affect the remaining reserve items. Associations should consult with general counsel on this issue. 

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Managing Owner Concerns Given the Insurance Crisis and New Inspection and Reserve Requirements

Jon Lemole, Esq.:

Our firm is a full service community association law firm serving southwest and central Florida. We handle all facets of association representation, including serving as general counsel, turnover and construction claims counsel, covenant enforcement and assessment collection. Our topic for discussion today continues to explore the effects of the recent condo safety legislation on Florida condo associations. To some extent, some of today's discussion we hope will also be helpful to those of you that are part of HOAs as well, especially when we discuss dealing with spiraling maintenance and repair costs and spiraling insurance costs in Florida, which I'm sure you're all dealing with.

We're going to do things a little differently today. We're going to actually have a panel discussion, and so we've invited some folks here to talk about some of the things that we know from hearing from condo associations that you're dealing with, and especially with regard to the increased financial burdens that associations are facing and how to deal with those, and especially how to manage community expectations and deal with members, because a lot of condo associations, especially, and homeowners associations are facing a very difficult budget decisions, and we know that.

And so we hope that this discussion will give you some good ideas, some best practices for managing those issues in your community. So our panel today is consisting of Cindy Hill and Dan Greenberg, and let me introduce both of them. Cindy Hill is a partner with our firm. Cindy's had a long time practice handling general representation of community associations in southwest Florida. She recently joined our firm and we're very happy to have her. And so Cindy will be speaking on some issues today. And then we've also invited Dan Greenberg and a lot of you know Dan. He's a frequent speaker. I've been on panels with Dan. Dan is a partner in Greenberg, Nickoloff, and his firm also does full service community association representation there in Dunedin, Florida. They represent community associations throughout the Tampa Bay area and central Florida. And Dan's a great friend of our firm and we hope that we're great friends of his firm.

I know that you all saw probably in the invitation we were hoping to be joined by Diane Simons. Diane's an also very, very capable and longtime community association lawyer based in Fort Myers. Her practice serves Lee and Collier counties. Unfortunately, as you can probably imagine, her practice and her life, frankly, has been severely impacted by Hurricane Ian. And unfortunately, she is unable to join us today. And so our thoughts are with Diane and all of our colleagues and managers and boards and residents of community associations down in southwest Florida who are still struggling with the aftermath of the terrible storm. So I've got the topic for today. You should all be able to see it on your screen. And the topic is managing owner concerns given the insurance crisis and new inspection and reserve requirements. So let's take a look at some of the topics that we hope to cover today.

So what we're going to do today is a short recap of the new safety inspection and reserve requirements, which are driving the very difficult budget decisions faced by association boards. We're going to also talk quickly about the nature of the present challenges faced by boards resulting from the inspection and new budgeting requirements. In the past, we've talked about some of the ambiguities in the legislation. So we're going to review some of those, and as we've dealt with this legislation and lived with it now for a few months, some consensus has started to develop around some of the areas of that legislation that were unclear. And so we're going to talk a little bit about that today and hopefully help you all resolve some of your questions about what does it apply to, who has to meet these requirements, who's subject to the new reserve requirements in the new legislation?

A lot of you have asked us in the past about the parts of the legislation that are directed towards manager and director fiduciary obligations. There's some language in there. And so we're going to talk about the changing landscape of board member and manager fiduciary duties and how does that change board decision making, if any, and frankly, why would anybody want to serve on a board anymore? And then probably the thing that a lot of people are really interested in today is how do we manage our members as managers, as directors?

We know that we're going to deal with members who are either not fully informed about the new legislation or who just continue to want to look at alternative reserve funding, waving funding, reducing funding, and those are issues that everybody's going to probably continue to deal with. So we're going to talk about how do we deal with those members and provide some pointers and best practices for that. Look folks, we know that a lot of you are facing very, very difficult budget decisions that are going to potentially increase special assessments for your members and for some of our associations out there, there may be members who are just not able to pay who are financially strapped and who are having financial difficulties. What do we do about those folks? How do we handle those issues when they come up?

A lot of you are also concerned about, well, we've got these inspections we have to do and we don't know what they're going to say, and we've got other projects that we were planning to accomplish, whether it be repair projects, maintenance projects, improvement projects, modernization projects. All a sudden we've got a lot of unknowns about how we should be prioritizing these things. So we'll talk a little bit about what are some of the ways that you can prioritize or should be thinking about prioritizing the projects that you were either contemplating or maybe are getting ready to perform given the new inspection requirements and not really knowing what that may entail as a result of those inspections.

In particular, right now, a lot of you are dealing with hurricane repairs and maintenance projects, and some of that may be covered by insurance and some of it may not be covered by insurance. So what do we do in this situation? We've had a lot of associations who have been coming to us and asking those questions. And then the very last thing that we're going to talk about, which is a topic that really could be its own webinar, but we're going to touch on a little bit because for some associations termination may be the option. And so we're going to talk about a little bit about how you should be thinking about that, what may be entailed with that. We're not going to spend a lot of time on it, but we certainly want to put it on your radar because for those of you that may be considering termination, that's a big step and there's a lot of planning involved in that.

So let's jump in. As you all know by now, the new safety legislation has brought positives and negatives to condo world. Certainly many people are relieved by the legislatures response to the tragedy at Champlain Towers in Surfside. Certainly, however, those safety initiatives and studies may be very costly for condominiums. Certainly the required reports will also need to be followed by costly repairs and repaired maintenance projects. Quick recap of the features of the inspection legislation. For buildings three stories are higher, and this is for condos only and co-ops, for buildings three stories are higher, condo associations are now mandated to have an engineer or architect perform structural milestone inspections every 25 or 30 years depending upon where your buildings are located relative to the coastline, 25 or 30 years from completion of the building, and you're also required to do a separate structural integrity reserve study every 10 years from formation of the condominium, and that's usually when the declaration was recorded.

For older buildings, those first milestone inspections are due by the end of 2024. For condominiums, the structural integrity reserve study is now due either before turnover by the developer or by the end of 2024 for associations which were under unit owner control prior to July of this year. The new legislation is also brought with it major changes in reserve funding requirements. It appears that gone are the days of reducing or waiving full funding or redirecting the use of reserves. Obviously these new inspection and reserve funding requirements are expected to cause a lot of financial pain, especially for older condominium condominiums or condominiums which are traditionally underfunded reserves. When we consider these new financial burdens in tandem with spiraling construction costs and a very stressed Florida insurance market, boards and managers can expect to face very difficult decisions about prioritizing maintenance and repair projects and annual budgeting.

There's also the possibility of dealing with uninformed and difficult owners or even owners who just don't have the means to pay higher assessments. There are also new considerations for directors and managers relating to their fiduciary duties. Today we'll try to provide some clarity and best practices for dealing with these issues. So I'm going to turn it over now to Cindy Hill. She's going to tackle the topic of ambiguities or talking about some of the ambiguous language in the legislation, defining who has to perform milestone inspections and structural integrity reserve studies and what reserves need to be fully funded and how they are to be funded. I know Cindy just got back from a two day symposium on the east coast where she was talking with condominium lawyers around the state, and so she has some good information for us. So Cindy, help us understand some of the ambiguities here. So two big areas are what constitutes a three story building and then who's subject to the new reserve requirements? Tell us a little bit about those.

Cindy Hill, Esq.:

Well, going back to attending the conference I did over on the East coast with about 500 other condo association attorneys, obviously a group of attorneys can't make decisions that judges will. So these are not set in stone decisions, but they are consensus, and one of the consensus that was reached amongst the attorneys is that the three stories is not limited to what you might call habitable stories. So for instance, the fact that you have a under story that's parking as opposed to three stories of all under air conditioning, is not something that any of us are seeing in the statute that's differentiated. It's quite clear that the statute does just say stories and the building code does not differentiate between habitable or non inhabitable. So I do understand that that leaves still a little hanging issue for folks who have maybe just a little top where they have a viewing area or maybe a half mezzanine on a story.

But I think that the consensus is that if you have a three story structure in the bottom story is parking, that's going to be a three story structure that's impacted by these bills. Again, these decisions have not been made by judges. The legislature has not changed any of the language, but this is the consensus among the community association attorneys and attendance at that conference and amongst those who were not also in attendance at the conference who we all keep in touch... We have an industry that's very communicative, so that that's going to be the consensus, that's going to be the conservative way to take this approach. Does it mean a year from now a judge might rule otherwise? No, I can't guarantee that, but I do advise my clients to take the conservative approach so you don't end up with a surprise. So that is the consensus on the three stories right now.

We will see where the law goes. There was a question earlier in the chat that Senate bill four is very unclear that if you have less than three stories, so not even talking about three stories, let's say you're a one or two story condominium, if you're going to have to follow the requirements of the not being able to waive reserves starting at the deadline of December 31st, 2024. And the division of condominiums, for those of you who are not familiar with that entity, it's a governmental entity based in Tallahassee, has some offices throughout the state, they came to the conference, and candidly, they're traditionally rather cagey about answering specific questions unless they do so in writing, but at this conference, they surprisingly said that they've talked to the legislature and it's going to be their position that yes, all condominiums, whether or not there are three stories.

So one or two are going to be subject to these fully funding requirements. Now let me clarify, fully funding for these structural requirements, the painting, the roofing, just with every other condominium, you are not going to be required to fully fund for areas that are not structural, such as if you have a gazebo picnic area, that is not going to be subject to fully funding for anyone, but everyone is going to see the painting, the roofing, the other what we call paragraph G list that your counsel for your association go over in detail with you.

Those are no longer going to be able to be waived whether you are a three story, one story, two story. So those are some clarifications on the ambiguities. I want to also clarify that there are still so many other ambiguities. All of you should be working with your counsel as you sit down and plan for these because there are no clear answers for some of these issues. And again, even some of the consensus I just participated in last week, we could have a judge who rules otherwise.

Jon Lemole, Esq.:

Thank you, Cindy. Dan, let's talk about fiduciary duties because there's language in the new legislation that presumably adds some elements to the fiduciary duties of both managers and directors. So the question for you is how does those provisions in the legislation, if any, how does that change board decision making and what should managers and directors know about any changes in their fiduciary obligations?

Dan Greenberg, Esq.:

Well, thanks for having me on, John and Cindy, it's always a pleasure to do presentations with you and especially on this topic which everyone is rightfully concerned about. Well, the cagey attorney answer, I suppose, is that it really doesn't change anything with respect to directors and officers fiduciary duty because long before 4D, directors and officers have always had a fiduciary duty to uphold the association's governing documents, follow Florida's statute and act in the best interest of the community. So in previous years, that was really more so related to the maintenance of the building, ensuring that the board properly undertook required maintenance to keep the building in a safe condition. Now with the new statute, that point has been hammered home because 4D has a specific [inaudible 00:18:15] that says it is a breach of an officer or director's fiduciary duty if they willfully and knowingly fail to have a milestone inspection performed.

So what that really does in the statute is create a per se violation, meaning the fact that you didn't do it, performed the milestone inspection is evidence of itself that you have breached your fiduciary duty. So it's not so much a factual issue anymore. The fact is you didn't perform the milestone inspection on time, therefore you have reached your fiduciary due to the corporation. And so that could theoretically lead to personal liability on behalf of an officer or director. And what I mean is normally you're protected by your directors and officers or errors and omission policies. So if the board makes an honest mistake and they are sued in their individual capacity, that case will be handled and covered by the association's directors and officers policy. Now though, if a board willfully chooses not to perform a milestone inspection and they are held in breach of their fiduciary duty by the statute itself, there's a very strong likelihood that the directors and officers policy will not cover those individual directors who voted not to perform the milestone inspection.

And I highlight that because, and this is true in all scenarios, when there's a controversial topic or something that may lead to a liability type of situation, those directors who try to do the right thing and are on record in the minutes voting in favor or against, depending on the situation, that issue, they would very likely be absolved of personal liability. Every director is a one person, one vote situation, so you can't necessarily force your other directors to do the right thing legally. So in this case, those that vote no or who choose to ignore the situation entirely could find themselves on the other end of a personal lawsuit attacking their personal finances.

Jon Lemole, Esq.:

Dan, we've heard from a lot of folks why would anybody want to be on board anymore given the things that they're expecting as a result of this legislation and the battles that are going to have to be fought with members? I would think that in some respects, this new fiduciary language in the statute also provides them with a ready answer to members who are creating issues around assessments and reserve funding.

And that kind of dovetails with the next topic that I'm going to ask you to talk about is you've got owners who are either uninformed, and I don't mean that in a bad way, they're just living their lives, they don't know what the statute says, and then there's probably a second class of owners who, despite what the statute says, and maybe knowing what the statute says, still are resistant to the reserve decisions that the board now has to make. So give us some ideas for how directors can handle that and managers as well, how do they handle those folks?

Dan Greenberg, Esq.:

Yeah, so this is an age old problem that we've dealt with in various capacities is general counsel attorneys for condo's and HOAs for as long as I've been doing this for 12 years, it's just that now the situation seems to be heightened or the stakes seem to be heightened because of the magnitude of the projects that we're [inaudible 00:22:04] undertake. So the philosophy is the same. And to answer your first question, it's hard enough to get board members to volunteer. 

So why would anyone want to volunteer when now the stakes seem to be even higher and all these things? Well, the answer remains the same, again, we need good directors to run associations and it is a difficult job. It's always been a difficult job. It will always be a difficult job, but if the good responsible well meaning people don't step up to run their community, then we kind of know what that's going to default to, and for as much as it may be a daunting task for a good, intelligent, well-meaning person to step up and see their community through this process, the alternative is far more damaging and destructive. And so I do want to make sure I'm very clear that those directors that step up through this difficult time and serve dutifully and bring their community through the other side are protected. So your coverage will protect you in those decisions that you make.

And it's very critical at this stage for condos, particularly the three story and higher condos that are going to have to go through these inspections and possible reconstruction projects to have as responsible of a board as possible to mitigate any of the various issues that could arise as we progress through this over the next couple of years. So I will continue to encourage directors to hang in there. It may get a little more difficult, but then to answer the second part of your question, the key is to surround yourself with good qualified vendors and professionals that are going to aid the board in making these decisions and getting the building properly inspected and reconstructed if necessary, and not only that, but the good vendors should help the board communicate these issues to the membership to avoid the very question that you've raised, which is some owners simply are not going to be informed about these issues.

They're going to be questioning why we're doing it, they're going to be pressuring the board or badgering the board to do it on the cheap or to try to keep assessment levels low and their perspective is going to be in the wrong place and not aligned with these responsibilities. So that all then comes down to communication. Boards are going to have to try to step up their efforts to ensure that the community understands why we have to do these things.

And that could include inviting in the attorney and the engineer and the reconstruction experts and the insurance agent in to additional meetings or putting that on as an agenda item at the next few meetings, offering these on Zoom where maybe you didn't in the past to try to encourage your out-of-state or out of country owners to join. The more that we can get the message out and get owners geared up for what is about to happen, I think the better chance we will have for the board to have a relatively easy path because the last thing we need is internal strife and resistance to what is already going to be a very challenging and likely costly project.

Jon Lemole, Esq.:

How about, Dan, business judgment rule? Is that affected? We heard Cindy talk a little bit about some ambiguous areas in the law. There's some consensus and Cindy, please weigh in as well. There's some consensus building on some areas, but take the reserve funding issues, although DBPR apparently says, or the division of condominium says that even two story buildings have to comply with these, where there are those ambiguous areas, does the board risk facing a charge of breach of fiduciary duty by making the call on some of these things or do they still have the benefit of the business judgment rule?

Dan Greenberg, Esq.:

Yeah, they absolutely do especially if they do the right thing and rely on the expert opinions to the best that we're able to provide guidance. This is a prime example of when the board needs to employ those folks to help guide the decisions. Business judgment rule protects board members when they act reasonably and in an informed and good faith manner. It does not mean that the project or the decision has to work out. Sometimes things go sideways for no fault of the boards at all. Sometimes it could be a vendor issue, sometimes it could be something unanticipated. That's life, and directors are not held to a perfection standard, but what they can't do is simply take everything on themselves and say, well, in an effort to save money, for example, we are not going to listen to or engage professionals to help guide these decisions.

We're going to wing it and hope for the best. That's the scenario where if the project goes sideways and the owners are financially damaged or worse, physically damaged in a worse case scenario, that's when the board's decision making is going to come under very intense scrutiny, and for those boards who choose to forego the wisdom of professionals who do this for a living full-time and who like you and I have been digging into this now for months, for hours and hours on end, it's our job to advise the board so that they can make the best decision possible for the association. And again, it's not a perfection standard. We can't guarantee results, but what we can do is try to guarantee that the process that the board follows is the correct process and then hopefully we end up with the right result.

Cindy Hill, Esq.:

And I'll add to that, Dan, I think one of the questions from the chat touched on boards not necessarily using a professional to put together the reserve study. That's a really ill-advised approach for these structural items. I'll again use the gazebo picnic bench example as if your board is anticipating what it's going to cost to replace gazebos and picnic benches, I'm not concerned as legal counsel, but if your board is trying to, as volunteers, come up with a budget for what it's going to take to do your structural parts of your building, I am very concerned because no insult to any board member, but you're not going to be qualified to have that objective knowledge and information and make those decisions and then you're going to lose that protection that Dan alluded to that when as a board of directors you get advice from a professional, you're able to say, well, we followed the advice of a professional.

Dan Greenberg, Esq.:

Yeah, And SB4D actually specifically addresses that issue with respect to the structural integrity reserve study and says that these structural integrity reserve studies cannot be performed by the management and the board alone. So the SIRs by statute has to involve a visual inspection by the engineer and then the completion of the report by a professional. And I'm glad Cindy raised the point, because historically speaking, many associations got by in years past without a formal reserve study, which was never required under the law. It was always a best practice. So it was very common for boards and managers to work together to build a reserve schedule based on either their own observations or working with local contractors like the roofer or the painter, to establish the useful life remaining on the component and the replacement cost. That is literally illegal now to do with the SIRs.

So we have to now rely on these third party companies, and I saw a question just come up in the chat with respect to the milestone, but also with the SIRs. What if we end up with a report that we don't agree with and we question the competence of the person preparing that report? That's a very problematic situation because you are essentially bound to use the findings of that report. So it really highlights the fact that you have to do your due diligence on the front end. Do not just sign the contract with the cheapest vendor or the one that says, I can get you on the schedule in three weeks. I would really question that vendor in their competence at that point.

You're going to have to do whatever due diligence you can, lean on the management company to use their resources, ask around to other communities who have used engineers. If you have never used an engineer, ask your attorney. You're going to have to really find the right people to produce these reports because I think the answer is on the back end, if you don't like the report that was presented, you're going to have to hire another company to produce a second report that you can then reasonably rely on, and these reports are extremely expensive. So that is really a last resort. So I'm going to encourage you to do as much due diligence on the front end as possible.

Jon Lemole, Esq.:

Cindy, one of the questions in the chat is if board members follow the recommendations of property management regarding financial decisions, does this offer legal protection to the board under the business judgment rule? So I think what the question is getting at is in terms of the reserve funding questions, is it enough to rely upon the guidance of property managers? Should board members be consulting with general counsel on these issues? What are your thoughts around that?

Cindy Hill, Esq.:

Well, property managers have their niche of knowledge, just like the attorneys have their niche of knowledge, the engineers have their niche of knowledge. Asking property managers to answer questions or outside of their niche is not going to be good practices, and it also puts property managers in a really uncomfortable position to the extent that you do see boards who want to try to minimize cost by not asking attorneys, engineers, accountants questions, asking them of their managers. Well, the managers can share their experiences. The managers can share their knowledge of the statutes when it comes to providing notices, the rights of owners to speak at meetings, but managers are not going to be in a position to be the professionals that answer these more complex questions [inaudible 00:32:43] laws. They are not engineers, they do not have law degrees, I'm not putting any managers education or knowledge down, but they are not the right professionals for a lot of these questions.

Now that being said, managers can share industry knowledge that they have from knowing their colleagues and knowing what they're seeing with their clients. But no, I would not want managers or boards to be relying on one another for these structural new issues in the law. And there is also now a provision that says that managers can actually be held liable in these scenarios. And I don't know what the legislature was thinking doing that, candidly, managers can only take action when directed by the board. They're not independent actors. So putting that additional liability burden on them I think was a terrible thing to do, but I think that just is going to add to the hesitation that managers are going to have to want to be the advice source for these issues. And I don't think it's fair to even do that to them. So I would say you can look to your manager for guidance, but don't look to your manager for answers.

Dan Greenberg, Esq.:

Yeah, I think that was clearly the intent of this statute was to separate boards and managers from their longstanding and usually mostly successful practice of keeping as much in-house as possible, saving money on these reports, kind of getting things done on a modest budget, which some communities did successfully, some others not obviously, but with these particular functions, the milestone and the SIRs, the statute is just abundantly clear that the intent is to take that decision making outside of the scope of the board and manager and put it into the hands of qualified professionals so that you can really ensure that your building, in its structural integrity, which is fundamental to everyone's safety, living in a mid and high rise condo, is really affected and governed by professionals whose job it is to ensure structural integrity and we have to accept it. This is not something that we're going to be able to push back against or fight against.

I get that question a lot. What changes do we anticipate in the statute? Will they relax things? People are trying to push projects off until the next legislative session. I'm not optimistic that we're going to see significant changes in the law, particularly not when it comes to the basics of the law and the inspection requirements. There may be some softening of deadlines, perhaps maybe some clarification of categories of review, but I think at this point, the genie's out of the bottle, the state has weighed in and said, we now care about the health of these buildings and we're going to mandate you to care as much as well to ensure that a Surfside never happens.

So we have to just, I think, accept that, we have to budget for it accordingly, and we're going to have to let the professionals do their job to help give everyone in the building peace of mind and ensure that these buildings, some of which are 30, 40, 50 years old, which I think John will get to later, can remain standing for theoretically another 50 years. And that's the goal here.

Jon Lemole, Esq.:

Cindy, I would imagine that there are probably a lot of older condo communities, middle income type communities that are really going to be affected by these requirements and they may have folks that just can't pay. And so what do we do? What does a board do in that case where just financially this is not doable, or maybe they have some that can and some that can't. What is some best practices that board members can think about in terms of those types of communities?

Cindy Hill, Esq.:

Well, looping back to the fiduciary duty of the board, the fiduciary duty of the board is to make the decisions that are in the best interest of the community. So to the extent that, let's say you have a scenario where 40 of the owners can pay whatever the costs are, but maybe five or six cannot, you can't prioritize the five or six and give them breaks that you would not give to the 40. So whatever approach you're going to take has to be fair and even. The other issue, that's the kind of harder one to take for those of us who do sympathize with people in life, and I would like to think that almost all of us do, is that this is a business. Your condominium, your HOA is a business, and to the extent you have owners who can't pay bills or can't sort out personal issues, it's not your issue to fix.

That's not to say you can't be sympathetic. It's not to say you can't listen, but it's not a board's job to help someone figure out how they can refinance their property. And it's a decision that a lot of people have to make at some point in life, which is, can I afford to stay where I am or do I need to move? And those are going to be hard things to hear, particularly if you have a larger group of owners. Going back to if you don't have five or six, maybe you have 20, maybe a 30, and you get told at a board meeting that you're booting them out of their house, that you're doing all these horrible things. As board directors and managers, you're going to have to remember you are taking action as part of a corporation. You are not an evil person, you are not a bad person.

These accelerated costs that are now coming down to condominiums are statutory, they are not discretionary. That being said, at the same time, your board can look at instead of maybe raising assessments at a higher rate right now, would it make sense to gradually raise them? Would it make sense to have a special assessment that can be paid off over time? That might help some owners. Would it also make sense to maybe take out a loan to help bridge the gap? But these will all be bridge the gap fixes, so to speak, because once the statutory deadline comes for the fully funding of the reserves annually structural items, there's not going to be this window to help bridge that gap between what's going to be much larger expenses from now to that time period.

So as you make these decisions, don't consider taking out a loan thinking somehow it's a resolution necessarily for what's coming. It may make sense for now, it may not. It may be that raising the assessments is going to help some people make some hard decisions sooner rather than later that may be better for them in the long run. So there are no answers to that other than I'd always encourage my boards to listen to complaints even when they feel painful. Listen to your owners, do what you can, but stand hard with [inaudible 00:39:20] this is a business and these requirements are statutory and going forward, it's only going to get more expensive, unfortunately.

Dan Greenberg, Esq.:

And speaking of the expenses, from what I'm seeing on proposals just starting to come in for the milestone and SIRs studies, we're looking at anywhere from two to $400 per unit milestone inspections, and for the combo platter, if you're going to use one firm to do both milestone and structural integrity reserve together, you could be looking at anywhere from four to $600 per unit.

So these are very expensive studies. And so when we talk about budgeting, although the full funding requirements don't hit until the 2025 budget, you really need to start now because you've got tens of thousands of dollars worth of engineering coming within the next 18 to 24 months. And then once we get those reports in hand, you're going to have one year to commence any repairs that are called for under the engineering study, the milestone protection. So within the next few years, it's very possible that you can be looking at tens of thousands of dollars worth of cost just to get you to the point of potentially remediating your building, which then could be tens or hundreds of thousands of dollars.

So this year's budget I think is really critical in a couple of ways. Number one, I would use this budget cycle to advise the owners of what's coming. You're going to have to use a three to five year forecasting plan, I think, because that's realistically what we're looking at. And those owners, to Cindy's point, those owners that are financially strapped or that are going to be financially strapped when these costs hit, they need to know that now, not necessarily in 24 months when $10,000 special assessment is going to have to be levied. You need to give them as much time as possible to start doing their own planning. And you may want to talk to your bank now and talk about opening up a line of credit so that you're not rushing to get funds, or if you're trying to avoid special assessments and a bank loan is a good option for you, start talking to them now.

Make sure that that relationship is solid and that money will be there for you. That is not a guarantee, by the way. And so depending on the health of your building on your delinquency levels, your leasing percentages, you may or may not qualify for traditional lending. So that is a conversation to have now in order to evaluate that because it very well may factor into your long term planning this budget season. And because we're going to have to start fully funding those accounts, the structural accounts in 2025, a lot of groups are starting to increase their reserve funding levels this year, those groups that are not fully funded just to try to lighten the burden in 2025 so it's not such a dramatic increase. So we really need to start this year, even though it's a couple of years off. I think you will be impacted immediately.

Jon Lemole, Esq.:

Cindy, so what I heard Dan just say is that the affected condominium associations are going to be facing engineering costs, they're going to be facing the possibility of having to do something as a result of the engineering inspection because we don't know what the engineering inspection is-

Cindy Hill, Esq.:

There will be something I think.

Jon Lemole, Esq.:

... going to say. So we've got all of these-

Cindy Hill, Esq.:

It could be a lot of somethings. Yeah.

Jon Lemole, Esq.:

Yeah. So we've got all of these unknowns about oh my gosh, we've got to pay the engineer, we may have to do some major repair projects in the future, how does an association prioritize right now? Do they just put a halt on any repair and maintenance projects until these reports are done? Did they have a continuing obligation to continue to do these maintenance and repair projects even though they may have a milestone inspection a year from now, which has additional things that need to be done? What is the association, the board's manager's duty around prioritization of their maintenance and repair obligations right now?

Cindy Hill, Esq.:

The new laws don't change any ongoing repair maintenance obligations that have been existing or continue to exist. The statute doesn't give any exceptions to that, doesn't allow the board to go, well, we were going to do this project but now we're not. At the same time, the board still has a discretion to decide that more aesthetic projects can be put on hold. But some of our associations are taking the approach, and I think it's a good way to do it, that to the extent they've already had some big projects in the works, they're getting them done before they do these studies and before they step up to the statutory requirements with the thinking that what these issues already done that will actually assist them in having a reserve study that won't be including a project that's right on top of what's needed to put it that way.

So, the statute doesn't change the obligations the board has to maintain the repair, the safety, the integrity of the buildings has to do whatever maintenance has been scheduled, but at the same time, getting it done right now might actually be a good decision before proceeding with some of these studies so that those items are 30 years out now, so to speak. I'm not going to give actual numbers for what the issues might be, but yeah, the obligations have not stopped, at the same time as a practical reality to the extent you might have been looking at changing the furniture in the entrance foyer, you might not want to do that now.

Dan Greenberg, Esq.:

Yeah, totally agree with that. If you can push anything, it would be those luxury kind of items right now because I totally agree with Cindy that the rest of the maintenance obligations in your declaration are not halted at all. You still have an obligation to maintain all the rest of the property as well, including your other facilities and capital improvements and amenities that these are items that the owners care about more so than all the stuff that we're talking about.

This now becomes your burden, but the reality is for most homeowners is they want the landscaping to continue looking nice and the gate to function and the tennis court to be not... They want to go on with life and the board has an obligation pursuant to the governing documents to continue maintaining other portions of the property as well. So this is just this additional sideline project that somehow has to be managed and funded while you continue on doing the ordinary business of the association.

So you may be able to find a little bit of room in this budget for some of the extra projects that you had in mind. Those may go fall to the wayside, but the other areas remain. So if you have your parking lot and you're due for a paving project because you've got potholes and whatever, even though that's not included in the structural integrity reserve study, your owners are still going to expect that they've got a nice parking lot and an entrance way to traverse. So that does not change and it's going to make it even more difficult for the board to manage everything else on top of the ordinary day-to-day obligations.

Jon Lemole, Esq.:

How are folks feeling, Cindy, you had mentioned this to me the other day. You were talking about the hurricane and you're hearing from a lot of associations about how to prioritize repairs relating to insurable events versus non insurable events. Talk a little bit about what you're hearing and what you're telling associations in regards to hurricane damage that they may have?

Cindy Hill, Esq.:

Yeah, from the maintenance obligations, because I could speak another 20 minutes on this, but just to give the quick on down to the extent that a unit owner's responsible for maintenance of certain areas doesn't mean that they're responsible for hurricane damage. The associations generally have the insurance coverage on your structural parts of the building and the association's going to be looking to their insurer to get these matters resolved. So I strongly advise if there's any question about any hurricane damage to the structure of you're building as opposed to maybe an owner who, oh, I don't know, left their door open and the rain came in, get with your counsel because these distinctions are very important. If you don't take the right path early on after an insurable event such as a hurricane, you may find that later on you lost opportunities for insurance coverage. So don't make any presumptions.

Contact your association counsel on these issues. The other thing I am seeing is some of the vendors don't understand, the mitigation vendors who are coming in and doing the dry out and clean up, some of them don't understand that condominium buildings or not apartment buildings. I was on the phone with a vendor earlier this week who was insisting that the association hire him to just remove everything from everyone's unit and just dump it in a dump and you can't do that.

And he was insisting, well this is how I've always done it. I do this, I've been doing this for 30 years. Who are you? What do you know? Okay, well no, don't let vendors insist that because they've been doing this work that they know how to address a condominium. I was telling this vendor, I'm not questioning what your issues are in terms of knowing that water damaged items [inaudible 00:48:43], what I'm telling you is you can't just carte blanche in a condominium, go and take out everyone's property. It doesn't work that way. So I strongly advise everyone on the call if there's been any hurricane damage to a property you manage or that you live in, that you contact your counsel and make sure that these issues are being addressed properly. And again, I could spend half an hour on that. I don't want to go down that path. But now is the window to get with your counsel.

Dan Greenberg, Esq.:

Couldn't agree more. It is imperative that you do so. Then the last comparable event that we had, at least here in the Tampa area was Irma, and unfortunately everyone was kind of asleep at the wheel when that one hit. No one had dealt with that magnitude of damage. There was a lot of confusion about what was covered by association insurance policies, how that dovetails with individual homeowners HO6 policies, how to document things, how to file claims, whether we should allow owners to do work within their unit or whether we should control it.It was a nightmare. And a lot of clients I think were prejudiced by not having a plan in place or at least a proper response. So if you are a southwest Florida client and you've been affected, I could not agree more with Cindy, this is an issue that you've got to let your property manager work with your attorney help resolve in order to maximize your insurance recovery and minimize your output for issues that really may not be an association responsibility.

These are tough issues to work through and the magnitude typically exceeds what the property management firm can reasonably handle. So you normally do have to get the attorney involved at least to help provide guidance in a situation like this. So I know we got very lucky on our side of the bridge, but I know many of you down further south did not. So any of us on the call that can be of assistance to you, do not hesitate to reach out.

Cindy Hill, Esq.:

Yeah.

Jon Lemole, Esq.:

And let's take a few minutes, so let's talk about condo termination real quickly. Again, we could spend an hour or two on the topic. Here's an interesting statement that we uncovered in the early '80s. Robert Crane, a well known engineer in the condominium construction defect world, was asked by HUD to opine on the anticipated useful life of condominiums buildings built in Florida. His conclusion was 50 years. Are we going to see a major uptick in condominium seeking termination? Cindy?

Cindy Hill, Esq.:

I think you will. I don't know how the [inaudible 00:51:23] is. I don't know if the we're going to see it as much in this area, for instance, as they will in south Florida where a lot of condominiums that were built down there, there's a lot more volume, a lot of older ones. Going back to the issue of can people afford this? Do they want to afford this? It may make sense for a 50 unit condo that was built in 1974, is close to the water, has not been well at maintaining reserves, all a hypothetical. But those owners might get together and decide, you know what? It's going to cost a prohibitive amount of money per special assessments, per raising our assessments to address these issues that are now being imposed on this by the legislature. Would we rather get together and look for a developer to buy our property? I think those conversations are going to happen. I think that the developers are ready to have those conversations. Are we going to see-

Jon Lemole, Esq.:

They're always ready for those conversations, I would imagine.

Cindy Hill, Esq.:

Yeah, exactly. And I don't think so. I think a lot of people people have bought condominiums for the purpose of enjoying the Florida lifestyle. Some of them also bought for the purposes of Airbnb or rental income. People weren't ready to turn around and suddenly give up their investments. So I don't know that we're going to see a large intake in it, but we are going to see it. It's going to happen. What are your thoughts on that, Dan?

Dan Greenberg, Esq.:

I agree. I think it's going to be certain specific subsets of condominiums, typically the older ones that folks have been living in since maybe the '60s and '70s and that are more fixed income, older crowd, but yet those buildings are treated the same as any other newer project. They have to be maintained and maintenance is expensive, and particularly in those older buildings that have kind of eschewed full funding of reserves and done minimal maintenance on the buildings, which unfortunately there are plenty in that boat.

For those types of communities where owners may be faced with tens of thousands of dollars worth of special assessments to reconstruct their buildings, that's probably the prime example of the group that may want to consider termination. I agree with you. For most other condos that are kind of middle aged so to speak, I think you're going to probably just suck it up and do the assessments, take the bank loan, reconstruct the project, even if it's a half a million or a million dollar reconstruction project, the reality is the investment is worth it and most owners are going to agree that this is what has to be done.

I'm not looking to give up this condo for all the reasons that you mentioned, so let's just get it done. I think we're going to find mostly a get it done attitude, but there will inevitably be some groups that just simply cannot bear that burden. So I think we'll have a handful of terminations throughout the state and it's an opportunity for redevelopment. We'll look at it positively. I suspect that this will lead to some good development and for the rest of us, I think we're just going to have to bear an increase financial burden to get our buildings into the condition that they should be in. But whenever I give this talk to my clients, I always remind them that what the legislature is now forcing us to do is something that we all should have been doing for the past three or four decades. So they're now just controlling the situation.

I think what we found was that the hands off nature of reserves and building inspection and maintenance requirements throughout the past few decades has come back to bite us a little bit. Some groups have been very good about it, others have not been. And now we're all being forced to look at the condition of the building, which should be of the upmost importance anyway to all owners living in a mid and high rise building. What could be more important than ensuring that the building itself is healthy and in good conditions? So before we go complain and I'll write millions of letters to our legislature saying, please get rid of these requirements, think about what you're asking for because I think at the heart of this legislation is good intent and it's for everyone's safety and I think we are going to have to just do it.

Jon Lemole, Esq.:

Good information, Cindy, Dan, appreciate it. Let's get to a couple of questions because we're almost at noon. Let's talk about windows because that's still an area where everybody scratches their head and goes, well we don't cover windows. It's not within the maintenance. They're part of the units. Cindy, [inaudible 00:56:08], were they talking about that at all? Was there some clarification on the thinking around windows and who's responsible for why windows are in subsection G?

Cindy Hill, Esq.:

Well, I actually tried to answer that in the chat and sending it to one person instead of the group. I'm not the most tech savvy person. The consensus seems to be that the legislature did not intend to nuance that issue. If the association is responsible for the windows, they're going to have to reserve the windows. If they're not, there's no mechanism in there where they force the owners to do it. So the consensus seems to be take the statute as it's written. If the list applies to you, you apply it. If components of the list don't apply to you, you don't apply it.

Dan Greenberg, Esq.:

Yeah, I agree with that. And the one conversation I had with an engineer about that point specifically, they said the same thing, which is that they will get an opinion from the association's attorney as to whether or not the association is responsible for the replacement.

Cindy Hill, Esq.:

Oh, that's an excellent way to proceed.

Dan Greenberg, Esq.:

So we are not responsible for window replacement, it's going to be a zero in the report, and the other things I guess I'll just put out there from conversation with the same engineer, with respect to the foundation and the structural members, which are two categories that everyone has a lot of concern about because at first blush we were all thinking, well, how are they going to value the foundation of a 20 story building? That's insane. That would be millions of dollars or something. So the answer that I got was that it's probably also going to be a zero because from an engineering perspective, there's no work that has to be done to the foundation of the building unless there's some issue or some degradation, which that can then usually just be fixed with some concrete restoration or shoring. So it's not going to be a replacement cost.

You don't replace the foundation of a high rise condominium. Same with the structural members. So what I think is going to happen when these SIRs start getting promulgated is that you're going to have some concrete restoration, deferred maintenance on those items and the engineers will kind of tell us that [inaudible 00:58:24] you probably look at those and maybe you do have to do a little bit of touch up work, but it's not an actual replacement.

But you have to remember that reserves have always contemplated deferred maintenance as opposed to just replacement. Deferred maintenance means we can do something to that component without replacing it, but it's extending its useful life, like an elevator modernization. We don't have to swap out the whole cab. We can do for a third of the price a modernization and get another 30, 40 years out of that elevator, for example. So we may end up having deferred maintenance costs as opposed to replacement costs, and it may be less than we were all initially anticipating or fearing.

Jon Lemole, Esq.:

Right. There's a question, do you need to order a SIRs from an engineer or can we rely on our reserve study provider? I think that's pretty clear, right? The SIRs, at least the visual inspection portion of the SIRs, has to be done by an engineer. A licensed engineer or architect in Florida needs to do the visual inspection of the structural components of the building.

Cindy Hill, Esq.:

Yeah. Otherwise you're not going to get-

Jon Lemole, Esq.:

The reserve calculations could be done by a reserve study provider, correct?

Cindy Hill, Esq.:

Yeah. Otherwise you're not going to get a professional assessment. I'll just give an example, after the hurricane, my parents had damage on their tile on their roof and I went over their house and told them, because they're snowbirds, and then the roofer went out there and said, actually the damage is worse than you think because there must have been some sort of a whirlwind that moved tiles on the top of the roof. My visual inspection didn't reveal that. The roofer revealed that. So I'm making a point that's a bit facetious, but the point I'm trying to make is don't go cheap on this. Make sure that you're getting the proper professionals to give you the reports you need because these reports are going to be relied on for many years and you don't want to set your association up with a bad beginning.

Dan Greenberg, Esq.:

A 10 year report. Both of these, the milestone and the SIRs are certified for 10 years, and what the statute says is, like Jon said, with the SIRs you still have to have an engineering component. So to answer the question, some reserve companies are going to have engineers on staff that can satisfy that component of the statute. So some of the reserve companies that you've been working with may be set up to do that, or they may partner with an engineer to come in to do the visual inspection part, then they will build out the reserve component.

Some of the engineering firms are doing both. They've basically staffed up so that they can provide reserve schedules as well or some of them have been providing reserve schedules for years. So you may end up using the same firm for both. You may have two different firms, but if you have two, they're going to have to talk to each other because we want the SIRs group looking at that milestone inspection so that we're kind of jiving and you don't get disparate reports either.

So ideally, sure, using one company would be great. The problem there is if you are less than 30 years old or 25 years, if you're within three miles of the coast, you don't want to do the milestone inspection early most likely. The SIRs requirement hits before the milestone requirement. The SIRs, everybody is three stories or higher, is by the end of 2024. Milestone is tied to the age of the building. And if you do the milestone early, you're creating an extra reporting cycle for yourself. And as we discuss, these are expensive reports.

So if you're a 15 year old building and you're not due for another 10 or 15 years on milestone and you do it now just to knock it out with your SIRs, you've created a full extra cycle of milestone inspection for your building, which could cost you tens of thousands of dollars. Now if you want the peace of mind to do that, by all means go ahead, but don't let the companies talk you into doing both because they say it's going to be more convenient. You'd really need to be sure that you're okay with that and it meets your long term plan because you're not obligated to do that milestone now or by the end of 2024 if you are a younger building.

Jon Lemole, Esq.:

Cindy, last question. Cindy, question was asked, I'm not going to read it verbatim, I'm going to interpret it a little bit, but you had said that the division of condominiums is taking the position that even a two story condo has to have full reserve funding for the reserve items that are specified in that subsection G, which defines what needs to be reserved for and included in instructional integrity reserve study. Does that also mean that those condos can also use those reserves for other uses? In other words, they have to keep those reserves for that specific purpose as well. So they're equally in the same reserve funding and reserve management regime as a three-story building would be.

Cindy Hill, Esq.:

That's correct. So to use the roof is an easy one because every building has a roof, funding is now going to only be able to be used for the roof. You're not going to be able to use it for other components that are part of that, what we call paragraph G, the structural components.

Jon Lemole, Esq.:

And that's across the board for everybody.

Cindy Hill, Esq.:

Per the division's take on this, and it's been the one that's really the conservative way to read the statute, candidly, to the extent it was surprising to hear the division say it out loud because they are so just touchy about not saying things other than what they've written. It makes sense. These are components that are of course bigger safety issues with larger buildings, but going back to some of the points [inaudible 01:04:04] have made, and Dan brought them up in terms of when you are avoiding a big structural necessary item, you're imposing a financial falsehood on some of your owners and they can end up with big bills they can't afford. So I think it makes logical sense even though it's painful to have these items be maintained in a way that everyone can feel that, hey, to the extent maybe we can't remodel the clubhouse, we know we have the money to do the roof and nobody's going to do $30,000 assessment because we didn't have the money.

Jon Lemole, Esq.:

Well, I want to thank both Dan and Cindy for this great information. I want to thank all of you for joining us. I hope you came away from today with some good ideas and some best practices for having some of these discussions in your communities and managing expectations of the members of your communities and dealing with a lot of the things that you're going to have to be dealing with in the coming months and year. And as always, we apologize if we couldn't get to everybody's questions in the chat.

Cindy Hill, Esq.:

Yeah, there were a lot. So definitely.

Jon Lemole, Esq.:

There were a lot today. But we would encourage everyone, feel free to email either our firm, You can email myself, Cindy, you can email Dan Greenberg, and we will be happy to take a look at those questions and provide some thoughts around those as well. And again, if you would like a copy of the presentation PowerPoint, you can email Michelle, I know a lot of you have asked for it in the chat and Michelle is monitoring that. And in about a week or so, maybe two weeks, we'll have this whole presentation both in video and transcribed up on our website, which is www.tlhlegal.com. 

Daniel Russo:

Can you give us the Florida statues that you've been referring to in sub section G?

Cindy Hill, Esq.:

It's 718112 paragraph two, paragraph G.

Jon Lemole, Esq.:

Okay, thank you everybody.

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Why Waiting to Implement the New Condo Repair/Reserves Legislation is a Mistake

It has become apparent that certain condo boards in Florida are taking a "wait and see" attitude towards implementing the requirements of the new Condo Repair/Reserves legislation. The reasons cited have been:

  1. The legislation was thrown together at the last minute, and until The Legislature clarifies ambiguous portions of the legislation, it would be hasty to act;
  2. The engineering/reserve studies that we currently have are good enough, and our reserves are enough; and
  3. The engineers are too busy or are outright refusing to conduct the required studies.

Waiting to implement the statutory requirements for all or any of these reasons is a mistake. Here's why:

THE LEGISLATURE IS UNPREDICTABLE

The Florida House of Representatives spent the 2022 regular session ignoring both the consequences of Champlain Towers and the property insurance crisis. It was only public outcry after the session, which caused both issues to be addressed in a special session. Will The Legislature pass a glitch bill in 2023 to clear up some of the ambiguities of the legislation recently passed? It may. If it doesn't, will a glitch bill be passed in 2024? Again, it's possible. If a glitch bill is passed, what issues will it cover? Again, who knows?

DIRECTORS RISK INDIVIDUAL LIABILITY

The common law in Florida before the passage of the new legislation basically immunized condo board members from individual liability except where they stole money from the Association, made financial decisions benefitting themselves, friends or relatives, or they used their position for discriminatory or vindictive purposes. Failure to maintain, failure to repair, failure to budget? These acts or failures to act may have subjected the condo association to corporate liability but were not a basis for individual director liability.

This has all changed with the new legislation. Pursuant to Florida Statute 468.4334(1)(a), the officers or directors of a condominium association required to have a milestone inspection, who willfully and knowingly fail to have the inspection performed, are in breach of their fiduciary duty and are personally liable.

The bottom line? Not taking action to at least attempt to secure the milestone inspection comes at great personal risk to board members. Would this be covered by directors' and officers' liability coverage? Perhaps. Or it could be subject to a policy exclusion.

THE NEW LEGISLATION IS VERY SPECIFIC ON WHAT IS NOW REQUIRED AND GUARANTEED IT IS DIFFERENT FROM WHAT YOU ALREADY HAVE

Nobody could have predicted the line items which The Legislature included in the new legislation, the terminology used, nor the procedures mandated. It is thus guaranteed that anything a Board had prepared before the legislation complies with what the legislation requires. With the personal exposure, relying on what you have is a risky move.

TRYING TO COMPLY MAY BE FRUITLESS

It is apparent that The Legislature passed the new legislation without inquiring of the stakeholders whether its implementation according to the strict schedule set forth by The Legislature was possible. The structural engineers of Florida certainly weren't consulted. In the wake of Champlain Towers and the Florida building boom in general, they were already overloaded. Board will have a very hard time finding engineers who are willing to undertake the studies and if so, are able to meet the strict deadlines in the legislation. So, the sheer nature of the task statewide in condo land relative to the manpower available to carry it out guarantees that for many condos, strict compliance will be possible.

TRY ANYWAY

There is a contract law concept known as "Impossibility of Performance" which under certain circumstances can excuse a party's performance under a contract. The Legislature has mandated that studies and reporting be initiated and completed on a set schedule. Make the attempt. Contact several engineering firms. Can't comply after all this? You've made a record of attempting to comply, and the impossibility of performance defense should be available to you in some form. After all, you can't do the impossible? Right?

CONCLUSION

The Florida Legislature, in its wisdom, established rigid performance requirements for condo associations for the undertaking of engineering inspections and the funding of reserves. These requirements were established apparently without inquiring of the structural engineering community in Florida whether the new workload could be borne. At the same time, the Legislature exposed individual directors to liability if they don't meet the proscribed deadlines. The bottom line: try anyway. It should be enough to avoid individual liability.

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Construction Defects…Who Pays?

Community associations confronted with construction defects face some very difficult financial choices. Often, these choices come on the heels of turnover, when a newly minted, owner-controlled board is just getting their bearings on planning and managing their operating and reserve accounts. Or, the defect may emanate from an expensive major repair project funded by member special assessments. Typically, the choices involved in these scenarios are: (1) do nothing; (2) make necessary repairs and pay for them entirely out of member assessments; or (3) hire a construction defects lawyer with the view of securing money from the responsible parties to reduce or, possibly, eliminate the amount of repair costs that would be otherwise funded entirely by owners. Let's look at the key risks and potential rewards involved with each.

1. Do Nothing

It should go without saying that the "do nothing" approach is ill-advised in almost every case. In Florida's harsh climate, any defects which compromise the building envelope or structural components are a ticking time bomb. At worst, an association taking this path may be faced with a Champlain Towers-style tragedy. Short of that, small problems eventually turn into large problems; the money saved by ignoring the issue today will surely turn into a significantly larger financial burden on owners when the problem can be ignored no longer. Plus, when the problem finally becomes too big to ignore, Florida's statute of repose and statute of limitations may shut the door to any claims against the responsible parties.

2. Self-Fund and Make Repairs

Perhaps the association is inclined to bite the proverbial bullet, making and paying for the needed repairs entirely out of association funds. Obviously, this serves the purpose of correcting the defective conditions expeditiously to prevent further damage and deterioration. However, here the association is faced with self-funding 100% of the costs to repair the shoddy work. This will be an unanticipated drain on reserve funds; alternatively, it may require a new round of special assessments. There will be some very unhappy, unwilling, or even unable owners confronting this association's board of directors. Un-repaired defects and/or high assessment default rates can severely harm an association's ability to obtain affordable property insurance and lines of credit. Time and time again, option 2 can effectively turn into option 1 due to members either unwilling or unable to approve and/or pay for the funding needed to perform the repairs.

3. Hire a Construction Defects Lawyer and Pursue a Claim

Very few people in this world enjoy the prospect of having to "lawyer up."At the end of the day, however, this usually turns out to be the most economically positive choice when faced with significant construction defects in your community. The goal of any experienced construction defects law firm is to return a positive net result to the client – a result that reduces owner-funding of repair costs by some or, even, all. Think of it this way, under options 1 or 2 the owners will pay for everything. Under option 3, the owners may pay nothing, but even if not, anything short of 100% is a win. In our experience, 97% of construction defect lawsuits settle without trial resulting in positive net cash flow to the association. That net cash flow can be used to reduce (or perhaps eliminate) the repair cost burden. This is true even where the claim amounts involved do not merit a full-contingent fee arrangement. In other words, even in instances where the claim amount might only attract a lawyer working on an hourly fee basis, the net result should ultimately result in, at worst, the association only bearing a portion of the overall repair costs.

4. Conclusion

A community association faced with construction defects has 3 options for covering the costs of repairing those defects: (1) do nothing; (2) make and pay for repairs; or (3) engage a construction defects lawyer to pursue claims against responsible parties. Options 1 and 2 will always result in 100% homeowner funding of repair costs. In most instances, option 3 will result in reducing homeowner funding by some or all. And, as a sage person once said, "something" is usually better than "nothing."

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'I can't sleep': Sarasota, Charlotte homeowners in limbo over unfinished houses.

Excerpt from article :

Alan Tannenbaum, a Sarasota construction litigation attorney with Tannenbaum Lemole & Kleinberg, once represented about 125 investors who found themselves in a similar situation as many of the Konsul Development's clients, with large deposits paid out and half-finished homes in North Port and Charlotte County.

That case eventually resulted in the fraud conviction of a Tampa banker and mortgage broker, but often criminal charges are difficult to prove, he said.

"This is a repeat of a problem that has plagued Charlotte County and North Port," he said. "You can't take construction funds without intent to finish construction."

Tannenbaum is not representing any of the people who had contracted with Konsul Development and did not know all the facts in the individual cases.

But he said that generally, inexperienced contractors can "box themselves in" by undertaking several contracts at once. The costs come due and the contractor loses money or doesn't have the means to finish construction. 

Link to article : 

https://www.heraldtribune.com/story/business/2022/04/18/sarasota-charlotte-north-porth-homeowners-spent-money-houses-not-started-partially-finished/7281356001/

Full article below :

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THE PITFALLS TO FLORIDA COMMUNITY ASSOCIATIONS OF UTILIZING NATIONAL INDUSTRY FORM CONTRACTS FOR REPAIR PROJECTS

The American Institute of Architects and three national engineering associations publish contract forms (AIA owner/general contractor agreements) and (EJCDC owner/general contractor agreements) that are intended for use nationally on major new construction projects.It's an easy default for Florida architects, engineers and contractors to recommend the use of these form contracts, or even incorporate such form contracts in their project manuals.Unfortunately, unless appropriately revised, they are a poor fit for a Florida repair project and do not adequately protect a community association's interests.

WHO IS BEST PROTECTED IN THESE FORM AGREEMENTS?

It was a brilliant strategy for architects and engineers to develop their own owner/general contractor contract forms.This is because they took the opportunity to maximize the design professional's authority in the construction process while minimizing the design professional's responsibility.A knowledgeable construction lawyer looking out for the Association's interests can go page by page through these form agreements to remove or revise the clauses which tend to minimize design professional responsibility.

Perhaps the most glaring weakness in these form agreements is that they make the design professional the initial arbiter of all disputes between owner and contractor.This may seem like an appropriate role for the design professional, but what if the dispute arises primarily or even partially from a glitch in the design?This represents a built-in conflict of interest.

INSURANCE REQUIREMENTS

The form agreement recommended on your project may provide for a waiver of subrogation by all parties.Subrogation in this context is where your insurance carrier pays a claim then seeks reimbursement for what they paid from another party's insurance carrier.But have the insurance companies involved signed off on this?If not, the Association's property insurance company, if it pays a claim, may ask for its money back from the Association when it subrogates against the general contractor's insurance company and is informed that the Association waived subrogation on its behalf in the contract.

The form agreements make the Association the named insured under the contractor's liability policy.This doesn't happen automatically.The contractor actually has to go to its insurer and secure a special endorsement for this.The form agreements leave out this detail.Make sure that the general contract is modified to require the endorsement (and then make sure it is provided per the contract).

The form agreements require that the Association obtain Builder's Risk Insurance.This covers losses during the work.This insurance may already be covered under the Association's existing property insurance coverage.If not, the specifications incorporated in the form contracts for the insurance may not match what is available in the market.The requirement for Builder's Risk insurance in the form contract may have to be modified or deleted.

LIQUIDATED DAMAGES FOR DELAY

There are none in these form agreements unless daily penalties for late completion are inserted.Additional language needs to be added to assure that the liquidated damages clause is enforceable in Florida.

INTEREST ON THE UNPAID BALANCE

There are various reasons why an Association may withhold payment.If it turns out that money was not justifiably withheld, you want the contract to provide for a reasonable interest rate to be owed on the unpaid balance.Under the form contracts, it's generally going to default to 18% in Florida unless a lower % is inserted in the form agreement.

FLORIDA DISCLOSURES

There are lien law and claim notice procedure disclosures which need to be incorporated in Florida repair contracts.The form industry agreements, being aimed towards a national audience, don't contain these.

VENUE AND DISPUTE RESOLUTION

The form industry contracts either mandate the arbitration of disputes or offer the option of either arbitration or circuit court.But under the AIA-form agreement, even if you choose circuit court, the agreement still requires that you mediate before filing suit under the auspices of the American Arbitration Association.We generally strike the AAA mediation requirement if circuit court is chosen as the venue.

It is very important that the venue for disputes with the design professional be the same venue as the disputes with the contractor.We always recommend venue for disputes in both the Association/design professional agreement and the Association/contractor agreement be designated as the state circuit court where the property is located.State court is preferable because it allows the Association the choice of a jury trial, there are broad discovery rights, all parties who may be liable are brought together in one action, there are full rights of appeal, and there are means through the proposal for settlement process to place pressure on the opposition to settle.

The form industry contracts do not provide for the award of prevailing party attorney's fees and costs.This is an essential protection for an Association and needs to be added to the form industry contracts.

CONCLUSION

Form industry contracts contain many great protections for Florida community associations on major repair jobs.However, they should not be adopted lock, stock and barrel without careful scrutiny and revision/supplementation by a Florida construction lawyer. 

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BUYER BEWARE: ONEROUS GENERAL CONDITIONS MANY ENGINEERS ARE ATTACHING TO THEIR AGREEMENTS, AND NOT WARNING YOU ABOUT

Florida engineering firms servicing condos, and connected townhome and duplex buildings under HOA control, before the tragic Surfside condo collapse were already paying very high premiums for professional liability insurance. Plus, the per claim deductibles under these policies were very high, sometimes up to $100,000 per claim.

After the Surfside condo collapse, professional liability insurers have tightened the screws on Florida engineers even more. As one method of reducing their risk in order to offer more modest premiums, professional liability insurers have supplied the engineers with standard general conditions to attach to their agreements, many of which conditions unfortunately represent a trap for Boards and management.

Some engineering firms are up front about the onerous general conditions that seek to impose. They indicate in bold letters on the cover page of their agreements that the fees quoted are based upon the engineer severely limiting their liability contractually, and that if the client desires the engineering firm's liability to be expanded then the engineering fees can be further negotiated to compensate for greater liability exposure. Unfortunately, this is the exception to the rule. Most engineering firms passing on the onerous general conditions supplied by the professional liability insurance companies don't mention word one about them when presenting their proposals. Management agents and Board Presidents don't know better, and these agreements are signed daily binding condo associations and HOAs to terrible terms.

Understand that not all the onerous general conditions are the product of the professional liability insurance industry. Some originate with engineering trade associations and groups. Others are based upon input from counsel retained by the engineering firm. In any case, here are examples of the traps for the unwary contained in attached general conditions:

LIMITATION OF LIABILITY

Many associations take solace in the fact that an engineering firm provides them with a Certificate of Insurance reflecting professional liability limits of a million dollars or more. Unfortunately, the general conditions attached to the engineer's agreement may contain a provision limiting the engineer's liability to the amount of fees paid or some low dollar amount such as $25,000 or $50,000 .If the engineer screws up the remedial design, and the association suffers major damage, the professional liability insurer will tender that $25,000 or $50,000 and call it a day. That million dollars of coverage recited in the Certificate of Insurance, of course, was merely an illusion.

INDEMNIFICATION

Indemnification refers to when another party is contractually bound to pay your defense costs and any judgment entered against you. Indemnification in the construction context has historically been a contractual benefit to an owner in relation to the general contractor. Basically, if the contractor screwed up and the owner was sued, the contractor was bound to pay the defense costs for the owner, and any judgment entered against the owner. As between the owner and the engineer or architect, there was generally no indemnification protection mandated by contract.

In a break from the past, engineers now try to impose indemnification obligations on associations in their general conditions. Some of the more onerous indemnification provisions impose full indemnification obligation on the association if the association or contractor are even partially responsible for the loss. This means in theory that if there is an issue with the completed project which a jury determines is 95% caused by the engineer's negligence and 5% caused by the contractor, the association will arguably have to indemnify the engineer for the whole of the damage and defense costs, including the engineer's 95% share.

Who would bear the burden of such an indemnification obligation? Arguably not the association's liability carrier (check with your agent). More likely it will be the association membership.

That would be a bitter pill for something which was primarily caused by the engineer's negligence.

WAIVER OF CONSEQUENTIAL DAMAGES

"Consequential damages" in the broadest sense of the term in relation to engineering design flaws are damages which flow as a consequence of the design flaw. If an engineer designs a balcony repair improperly and the balcony collapses, the cost of replacing the balcony is the direct damage, whereby the damage caused to balconies and automobiles below would represent "consequential damage. "In that particular example, the "consequential damage" in dollar terms may be significantly greater than the "direct damage."

The general conditions attached to the engineering agreement handed to you may contain a full waiver of consequential damage. There is no reason for this except to erase a large potential exposure for the engineer and their liability insurance carrier.

ASSUMPTION OF ALL RISKS

There were a set of general conditions recently reviewed by the author which included the sentence: "Client assumes the entire risk as to the use of the deliverable, and any results generated thereby. "This could be interpreted to mean that the association assumes all risk of flaws in the engineer's design. Yeah, that's fair and reasonable

FULL PAYMENT DUE EVEN IF ENGINEER IS TERMINATED FOR CAUSE

If the engineer is six months late in producing design documents, and the association terminates the engineer because of nonperformance, there may be a clause in the general conditions providing that the engineer is still entitled to full payment for whatever work had been accomplished with the design as of termination.

COLLECTION COSTS AND REMEDIES

Often in the general conditions, if the association does not pay the engineer, even if the engineer screwed up, interest of up to 18% is imposed on any on past due balance, and the engineer is entitled to attorney's fees and costs for pursuing the balance due.

DEADLINE FOR PURSUING CLAIMS AGAINST THE ENGINEER

In Florida, an association has four years from the date a consequence of an engineering design defect is discovered to file suit (but no more than ten years from the date of project completion for a latent defect). Sometimes in the general conditions there is a provision limiting the time period for filing suit to, for instance, two years. Again, there is no justification for this other than to artificially cut off claims for which the engineer and its carrier would otherwise be responsible.

DISPUTE RESOLUTION

General conditions attached to engineering agreements often call for the arbitration of professional liability claims with no attorney's fees or costs being awardable by the arbitrator. Lawyers representing associations generally recommend that disputes be resolved in the state court in the judicial circuit in which the property is located, with the prevailing party being entitled to an award of attorney's fees and costs. The main reasons associations should want to be in state court are (1) the right to have the case heard by a jury; (2) all parties and claims involved in the dispute are brought together in one forum; (3) full discovery rights are available; and (4) full right of appeal.

REJECTING THE GENERAL CONDITIONS BEFORE THE AGREEMENT IS SIGNED

This is the key. Look for the general conditions when the engineering agreement is first presented and send the agreement over to construction counsel to review before signing. Most of the time when engineers are called on the onerous general conditions they have presented, they will agree to grudgingly modify them. Modification after the agreement is executed, especially where the design has already been performed, brings with it complications, primarily the fact that the professional liability insurance carrier may not sign off on the retroactive modification of the engineering agreement.

WHAT'S THE ULTIMATE SOLUTION FAIR TO ALL PARTIES?

In the wake of the Surfside tragedy, associations across Florida are having their buildings investigated by engineers, and the engineers are finding problems which often require major repairs. The professional liability insurance underwriters are understandably concerned about the exposure this wave of repair designs will bring as the insurers of the engineers' work product. The professional liability insurance carriers, knowing that there is a limit to what they can charge in premiums to the engineers, opt instead to transfer the risk to associations through onerous general conditions which they have their insureds include in their agreements.

The solution may lie in project-specific professional liability coverage. Let's say an engineer is asked to design a $3,000,000 condo repair project. The engineering firm goes to its professional liability carrier and gets a quote for how much additional premium over the engineer's standard premium the carrier would charge for providing professional liability coverage of a million dollars for the design. Say the carrier quotes $7,500.00. The cost of that project-specific premium is quoted to the condo association in the engineering agreement as an optional cost if the condo association wants full professional liability coverage. The engineer is not burdened by the additional premium, the design is appropriately insured, and the risk absorbed by the carrier is accounted for through the enhanced premium.

Professional liability underwriters, can you meet this challenge?

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Delayed HOA Turnovers -  Can the Lot Owners Force Turnover?

Florida has a strong, comprehensive Condo Act (Chap. 718). It has a weak HOA Act (Chap. 720). It is apparent that developers in Florida kicked themselves for having allowed a consumer-friendly Condo Act to have been passed in the early 1970's by The Florida Legislature and vowed never to allow it to happen for deed-restricted HOA communities. The result has been a concerted effort by developers since the '70's to block attempts to incorporate basic consumer protections in Chap. 720. One example concerns the right of lot owners to force the turnover of the HOA to lot owner control.

Under the Condo Act, there are several possible triggers mandating turnover:

718.301 Transfer of association control; claims of defect by association.—
(1) . . . Unit owners other than the developer are entitled to elect at least a majority of the members of the board of administration of an association, upon the first to occur of any of the following events:
(a) Three years after 50 percent of the units that will be operated ultimately by the association have been conveyed to purchasers;
(b) Three months after 90 percent of the units that will be operated ultimately by the association have been conveyed to purchasers;
(c) When all the units that will be operated ultimately by the association have been completed, some of them have been conveyed to purchasers, and none of the others are being offered for sale by the developer in the ordinary course of business;
(d) When some of the units have been conveyed to purchasers and none of the others are being constructed or offered for sale by the developer in the ordinary course of business;
(e) When the developer files a petition seeking protection in bankruptcy;
(f) When a receiver for the developer is appointed by a circuit court and is not discharged within 30 days after such appointment, unless the court determines within 30 days after appointment of the receiver that transfer of control would be detrimental to the association or its members; or
(g) Seven years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit in the condominium which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first; or, in the case of an association that may ultimately operate more than one condominium, 7 years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first, for the first condominium it operates; or, in the case of an association operating a phase condominium created pursuant to s. 718.403, 7 years after the date of the recording of the certificate of a surveyor and mapper pursuant to s. 718.104(4)(e) or the recording of an instrument that transfers title to a unit which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit, whichever occurs first.

Under the HOA Act, the triggers for mandatory turnover of the HOA to lot owner control are more limited:

720.307 Transition of association control in a community.—With respect to homeowners' associations:

(1) Members other than the developer are entitled to elect at least a majority of the members of the board of directors of the homeowners' association when the earlier of the following events occurs:
(a) Three months after 90 percent of the parcels in all phases of the community that will ultimately be operated by the homeowners' association have been conveyed to members other than the developer;
(b) Such other percentage of the parcels has been conveyed to members, or such other date or event has occurred, as is set forth in the governing documents in order to comply with the requirements of any governmentally chartered entity with regard to the mortgage financing of parcels;
(c) Upon the developer abandoning or deserting its responsibility to maintain and complete the amenities or infrastructure as disclosed in the governing documents. There is a rebuttable presumption that the developer has abandoned and deserted the property if the developer has unpaid assessments or guaranteed amounts under s. 720.308 for a period of more than 2 years;
(d) Upon the developer filing a petition seeking protection under chapter 7 of the federal Bankruptcy Code;
(e) Upon the developer losing title to the property through a foreclosure action or the transfer of a deed in lieu of foreclosure, unless the successor owner has accepted an assignment of developer rights and responsibilities first arising after the date of such assignment; or
(f) Upon a receiver for the developer being appointed by a circuit court and not being discharged within 30 days after such appointment, unless the court determines within 30 days after such appointment that transfer of control would be detrimental to the association or its members.

What is obviously missing are timeline triggers other than the 90% sale threshold. This is what has allowed HOAs in projects around Florida slow to be completed to remain under developer control sometimes for decades.

For possible receivership, Chapter 720 is also limited. Here is the operative statute:

720.3053 Failure to fill vacancies on board of directors sufficient to constitute a quorum; appointment of receiver upon petition of member.

(1) If an association fails to fill vacancies on the board of directors sufficient to constitute a quorum in accordance with the bylaws, any member may give notice of the member's intent to apply to the circuit court within whose jurisdiction the association lies for the appointment of a receiver to manage the affairs of the association. . .
(2) The notice required by subsection (1) must be provided by the member to the association by certified mail or personal delivery, must be posted in a conspicuous place within the homeowners' association, and must be provided to every member of the association by certified mail or personal delivery. The notice must be posted and mailed or delivered at least 30 days prior to the filing of a petition seeking receivership. Notice by mail to a member shall be sent to the address used by the county property appraiser for notice to the member.
(3) If the association fails to fill the vacancies within 30 days after the notice required by subsection (1) is posted and mailed or delivered, the member may proceed with the petition.
(4) If a receiver is appointed, all members shall be given written notice of such appointment as provided in s. 720.313.
(5) The association shall be responsible for the salary of the receiver, court costs, and attorney's fees. The receiver shall have all powers and duties of a duly constituted board of directors and shall serve until the association fills vacancies on the board sufficient to constitute a quorum and the court relieves the receiver of the appointment.

In that the right to have a receiver appointed is tied solely to the developer not appointing a board and not to performance, unless the developer is not operating the HOA at all, this remedy would likely not bear fruit.

Chapter 720.305, does have some teeth and is likely the lot owners best bet to change the dynamics. It provides:

720.305 Obligations of members; remedies at law or in equity; levy of fines and suspension of use rights.

(1) Each member and the member's tenants, guests, and invitees, and each association, are governed by, and must comply with, this chapter, the governing documents of the community, and the rules of the association. Actions at law or in equity, or both, to redress alleged failure or refusal to comply with these provisions may be brought by the association or by any member against:
(a) The association;
(b) A member;
(c) Any director or officer of an association who willfully and knowingly fails to comply with these provisions; and
(d) Any tenants, guests, or invitees occupying a parcel or using the common areas.

The prevailing party in any such litigation is entitled to recover reasonable attorney fees and costs. A member prevailing in an action between the association and the member under this section, in addition to recovering his or her reasonable attorney fees, may recover additional amounts as determined by the court to be necessary to reimburse the member for his or her share of assessments levied by the association to fund its expenses of the litigation. This relief does not exclude other remedies provided by law. This section does not deprive any person of any other available right or remedy.

What would have to happen is that interested lot owners would need to band together, create a legal fund, and hire a lawyer to seek an injunction under Section 720.305 against the HOA and the developer directors seeking a court order requiring the HOA and developer directors to operate the HOA in accordance with Chapter 720 and the recorded HOA Covenants. This could result in the developer voluntarily agreeing to turn over control of the HOA to the lot owners. 

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Supply Chain Florida

Pandemic Supply-Chain Problems Shine Spotlight on Force Majeure Clauses in Major Repair Contracts

Many Americans are by now familiar with the shortage of consumer goods resulting from the Covid-19 pandemic.Condominium and homeowners' associations have also been faced with supply disruptions affecting planned or on-going major repair projects.Many a community association is being asked by its contractors to accept both delays and price increases for the work.The phrase "force majeure" has suddenly become a crucial concept in dealing with requested delays and price changes in projects already under contract.

What is Force Majeure

Force majeure – a French phrase – literally means "superior force."Lawyers and clients, alike, typically think of force majeure as being a contract clause covering the consequences of uncontrollable events such as storms, labor strikes and the proverbial "acts of God."Such clauses can provide for extensions of time, increases in pricing, or even termination of the contract.Yet, every force majeure clause is different.Associations faced with a contractor's force majeure request mid-project need to carefully analyze the wording of that clause to determine what its obligations are.Associations preparing to negotiate or sign a contract should undertake careful drafting of a force majeure clause to shift as much risk of uncontrollable events onto the contractor.Though often contained in the contract's general conditions or buried at the end of the contract, force majeure clauses should never be casually overlooked as mere boilerplate.

Force Majeure Drafting and Interpretation

Contractors commonly advocate that any unplanned circumstance which makes a contractor's performance extremely difficult, expensive – or even impossible and profitless – relieves the contractor from completing the contract.This is not true.If the event's risks were reasonably foreseeable, Florida law places the burden on the parties to specifically address them in the contract.Or, as one court stated, a contractor can't simply get out of a contract made difficult by unplanned events "if the relevant business risk was foreseeable at the inception of the agreement and could have been the subject of an express contractual agreement."Home Design Center – Joint Venture v. County Appliances of Naples, Inc., 563 So. 2d 767, 769-770 (Fla. 2d DCA 1990).Therefore, during contract negotiations both sides are advised to pay strict attention to the kinds of events that will allow an adjustment in the contractor's obligations, and what kinds of adjustments will be allowed.Anything that was foreseeable, but not accounted for in the contract, will be at the contractor's risk.

Associations facing existing pandemic-related force majeure demands should scrutinize the terms of the existing force majeure clause in the contract.For example, one could argue that any reputable roofing contractor entering into a contract within the last six months should have reasonably foreseen potential materials shortages and price increases due to the pandemic.Therefore, does a fair reading of the force majeure clause in your contract include events such as "national emergencies" or "supplier failures."If it does, then pandemic-related supply disruptions would arguably be the basis for a force majeure adjustment.What adjustment, then?Again, look to the contract language.Is a time and price adjustment permitted?Or just a time adjustment?For example, consider the following clause which provides that:

the excused party shall use reasonable efforts to avoid and remove such causes of non-performance and shall proceed to perform with reasonable dispatch whenever such causes are removed or ceased.

Arguably this language allows the contractor a time adjustment, but on condition that the contractor explore other supplier options and begin performing once supplies are reasonably available.It does not, however, suggest the availability of a price increase.Therefore, the association faced with this force majeure clause should consent to reasonable extensions of the contract times while resisting a request to pay for increased materials costs.

To conclude, a community association is always advised to address force majeure provisions with great care during contract drafting.When confronted with a force majeure request mid-project, an association should carefully read and interpret the existing force majeure clause and seek legal counsel as to the obligations imposed by it.At the end of the day force majeure provisions are the primary risk adjustment tool in the face of events beyond the parties' control.

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CONNECTED TOWNHOMES ADMINISTERED BY FLORIDA HOAs

ARGUMENT FOR AMENDING THE CCRs EARLY ON TO MAXIMIZE THE HOA's MAINTENANCE, REPAIR, AND CLAIM AUTHORITY

For decades after condos were first developed in Florida in the '60s, developers desiring to build and sell connected townhomes (duplexes, triplexes, quadruplexes, etc) declared the buildings to condominium. Under the condominium regime, typically components of connected townhomes serving more than one unit (structural elements, walls, windows, roofs, and mechanical, electrical, and plumbing elements) were declared as common elements subject to the condo association's maintenance and repair responsibility.

Condo development in Florida, of course, carries with it some detriments for developers. First, broad non-waivable warranties of construction quality benefitting unit purchasers are imposed. Second, condo developers must jump through substantial hoops in getting documentation approved by the State. Third, condo association operation during the period of developer control is highly regulated, and the regulations are enforced by a state agency with jurisdiction over condo developers and developer-controlled condo associations. Fourth, statutes of limitation on claims do not begin to run until the transition of the condo association to unit owner control.

Deed-restricted HOA communities in Florida, on the other hand, are not subject to The Florida Condominium Act. There are no statutory warranties imposed on developers. There is no requirement to submit documentation to the State. There are only limited statutory requirements for HOA operation during developer control, and there is no regulating state agency. Finally, there is no statutory provision extending the accrual of statutes of limitation until turnover of an HOA to lot owner control.

Knowing the complexities and risks of developing condos in Florida, a couple of decades back some ingenious developer came up with the idea of developing connected townhomes under an HOA regime. Since then, many communities around Florida have been developed as deed-restricted HOAs containing solely connected townhomes or connected townhomes as part of a mixed single-family home/connected townhome community.

Connected Townhomes Under an HOA Scheme – The Maintenance and Repair Dilemma

With a condo, common elements are owned by all of the unit owners as joint tenants, with the common elements maintained and repaired by the condo association. A fellow owner far afield from your building owns as much of the roof on your building as you do. In an HOA with connected townhomes, no portion of the connected townhomes is jointly owned. Each townhome owner owns their townhome in fee simple. Consequently, with a fourplex, even though the townhomes are physically connected, there are only four owners each owning solely their townhome, which includes interior and exterior components (structural elements, walls, windows, roofs, and mechanical, electrical, and plumbing elements). The owner of a townhome across the street from you owns no part of your connected townhome.

The recorded Covenants, Conditions, and Restrictions (CCRs) of an HOA community may provide the HOA some degree of maintenance and repair responsibility over its connected townhomes. There is no statutory requirement, however, that the CCRs for an HOA community require the HOA to have any maintenance and repair responsibility for the connected townhomes. What has occurred as a result is that developer lawyers have drafted HOA documents that are across the board as far as HOA maintenance and repair responsibility over connected townhomes, from no responsibility, to some responsibility, to extensive responsibility.

Where the CCRs provide little or no, or simply incomplete, HOA maintenance and repair responsibility for the common elements of connected townhomes, the connected owners are left to fend for themselves. When one side of a duplex is settling because of a foundation deficiency or sinkhole, which may impact both units, there is no mechanism for sharing the repair decisions or expense, other than seeking court relief, if the duplex owners cannot agree. What if second floor or roof framing deficiencies in a fourplex are causing roof issues or exterior stucco cracking. You likely will not be able to fix the problem with each owner addressing just the framing of their particular townhome. How are they even going to agree on how the cost of having an engineer analyze the problem is to be split? What if there is disagreement on how to repair a problem that affects more than one townhome?

Investigating Defects and Deficiencies

Under HOA CCRs, HOAs are restricted to spending HOA funds strictly on Association responsibilities. If an HOA's maintenance and repair responsibility per the CCRs is limited to the painting of the exterior walls of connected townhomes, and the stucco is cracking, arguably the stucco cracking is not within the HOA's maintenance and repair purview, and thus HOA funds are not appropriately spent on investigating the stucco cracking. The same limitation would apply to foundation and framing deficiencies, common piping and mechanical component deficiencies, termite infestation, and any manner of serious construction and design defects that could affect connected townhomes.

With the HOA being restricted in its ability to investigate common defects and deficiencies, the owners of the connected townhomes are again left to fend for themselves as far as investigating the cause of the building issues, a situation ripe for confusion and conflict.

Pursuing Responsible Parties for Defects and Deficiencies

HOA standing to pursue responsible parties for defects and deficiencies in connected townhomes is governed by the following rule of procedure adopted by The Florida Supreme Court:

Rule 1.221 - HOMEOWNERS' ASSOCIATIONS AND CONDOMINIUM ASSOCIATIONS

A homeowners' . . . association, after control of such association, is obtained by homeowners.  . . . other than the developer, may institute, maintain, settle, or appeal actions or hearings in its name on behalf of all association members concerning matters of common interest to the members, including, but not limited to:

. . . (2) the roof or structural components of a building, or other improvements (in the case of homeowners' associations, being specifically limited to those improvements for which the association is responsible); (3) mechanical, electrical, or plumbing elements serving a property or an improvement or building (in the case of homeowners' associations, being specifically limited to those elements for which the association is responsible) . . .

Simply put, if the CCRs don't provide for HOA responsibility for maintaining a component of connected townhomes, the HOA cannot pursue responsible parties for the cost of correcting the defects and deficiencies in such component. The stucco can be cracking on the second floor of all the connected townhomes in the community caused by framing deficiencies, but unless the HOA has repair responsibility for the framing and stucco, it lacks standing to pursue responsible parties for the cost of repair.

Without HOA standing to pursue responsible parties, townhome owners are again left to fend for themselves. Could six owners of a sixplex join together in a suit to tackle common defects in their connected townhomes? Possibly, but how would they agree on sharing the cost of pursuit? Then, if a recovery is realized, how would they agree on undertaking necessary repairs, especially if the cost of the repair was greater than the net recovery?

Economy of Scale in Undertaking Maintenance and Repairs

Our firm represented a duplex community with identical shingle roofs. In the first decent windstorm after construction was completed, several shingles were dislodged or blew off across the community. Under the CCRs, the HOA had no maintenance and repair responsibility for the roofs. The Board resisted the idea of proposing an amendment to the CCRs to provide HOA responsibility for duplex roof repairs or replacement.

Without the amendment of the CCRs, each pair of duplex owners was on their own as far as contracting with roofers to replace their defective roofs. It is no mystery within the roofing field that if a roofing contractor bids on the replacement of a single duplex roof in a community that the cost of those reroofs would be significantly greater per duplex than if the same roofing contractor was asked to bid the reroof of 150 duplexes.

An HOA has significantly greater buying power than owners operating alone. Furthermore, the HOA, with professional management, supported by an engineer and construction lawyer, is in a much better position to assure that the work is done correctly and on time, with manufacturer's warranties being delivered at the end of the job.

Protecting the Aesthetics of the Community

With the HOA administering repairs to the exterior of connected townhomes, the HOA is in the position to protect the aesthetics of the community as originally conceived. Retaining one repair contractor to conduct repairs on connected townhomes across the community allows for aesthetics to be preserved.

With owners hiring their own contractors to undertake stucco repairs, window replacement, roof repairs and replacement, etc., it would be very difficult over the long term to preserve the aesthetics of the community, with no doubt a concomitant negative impact on townhome values.

Safety Concerns

With contractors hired by the HOA to undertake exterior repairs and maintenance on connected townhomes, there is a much better opportunity to protect persons and property from damage resulting from repair efforts than if individual townhome owners are inviting contractors to the community on a piecemeal basis. This is especially true where the setback between sets of connected townhomes is very tight.

The Solution

Amend the CCRs in your connected townhome community to expand the HOA's maintenance and repair responsibility to cover all of the townhome exteriors, and the common structural, mechanical, plumbing, and electrical elements of the connected townhomes. That will cure the maintenance and repair dilemma, provide economy of scale in undertaking investigation and repair, allow for the efficient and effective pursuit of responsible parties, preserve the aesthetics of the community, protect property values, and reduce risk.

What if only a portion of the community is comprised of connected townhomes? Wouldn't the amendment unfairly burden the owners of single-family homes? The solution is to amend the documents so that only the owners of the connected townhomes are burdened by the assessments necessary to repair and maintain the townhomes and to pursue relief for any defects and deficiencies therein. But what if the HOA already had maintenance and repair obligations for the roofs? Should only the expansion of the maintenance and repair responsibility be borne by the townhome owners, or all of it?

The insurance requirements in the CCRs would likely also need to be amended so that common components of the connected townhomes are insured under the Association's property and liability coverages.

What about the expansion of an HOA's maintenance and repair responsibility to cover the exterior walls, roofs, and structural components of the single-family homes in the community? If the homes are identical in configuration and construction, this could make sense for all the reasons expressed in this article. If there is a common defect and deficiency affecting all the homes, amending the documents to expand HOA maintenance and repair responsibility could make for efficient claim pursuit.

Conclusion

There were problems easily anticipatable in Florida when developers chose for their convenience to develop connected townhomes and make them all or part of a deed-restricted HOA community rather than a condominium. There has been no statutory solution proposed to correct the anomalies created. Document amendment, however, can overcome the bulk of the ills. This could even be considered for single-family homes where the homes are consistent in configuration and construction. Consult your general counsel to get the amendments customized properly for your community. Beware of time constraints for claim pursuit which may dictate expedited action on amendment passage. 

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Miami's condo industry is scrambling after the Surfside collapse

Alan Tannenbaum, a board-certified construction lawyer, told Insider more than 400 attendees recently showed up to an educational Zoom session held by his firm on the topic of aging condominiums. He said he viewed it as "an awakening" of what condo boards' responsibilities are to the unit owners.

"The [condo] boards are very concerned about their liability. They obviously want to protect their owners from anything catastrophic occurring," he said. "There's a heightened sense of awareness. They're learning a lot about what their requirements are, and paying more attention."

Read the full article here :  https://www.insider.com/miami-condo-industry-is-scrambling-after-surfside-collapse-2021-7


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Aging Condo Buildings – Repair or Abandon

Even if expensive, by statute necessary repairs cannot be avoided for aging condominium buildings. Allowing the buildings to deteriorate could constitute a material alteration for which a unit owner could take issue. Termination is a cumbersome process, but should it be considered for aging condo properties? Does repairing the buildings no longer make economic sense? Learn what alternatives associations have when faced with aging buildings…Repair or Abandon?

Alan Tannenbaum:

Our topic today is Aging Condo Buildings – Repair or Abandon. We've all been affected by the horrendous circumstances that occurred in Surfside. We actually had planned to give this presentation weeks in advance of what occurred in Surfside. It pointed out some of the issues surrounding this whole thing of condominium repair, obviously in the most drastic way imaginable. We all feel for the people who perished, the families in that terrible tragedy.

From somebody ... And our firm is involved in construction defects and consulting on major repairs of condominiums and homeowner association buildings. I've been working in this field for over four decades, and what occurred in Surfside, from my perspective, was inevitable that at some point there was going to be a collapse and there was going to be loss of life because we're certainly aware that there are a number of buildings, mostly along the coast that have been deteriorating from the environment.

Adequate repairs, investigations have not been undertaken. You have the issues of infighting among board members, owners and boards not being able to agree on repairs and paying for repairs. Unfortunately, in Florida you have the whole issue of reserves. As everybody familiar with the Condominium Act knows, every year a board of directors is obligated to prepare a budget that includes fully funded reserves for all building repair items greater than $10,000.

Then the owners can vote at a meeting to waive those reserves or to agree in decreasing the reserves. Unfortunately, what boards have done time after time is they've accepted that owner vote and reserves have either been waived or decreased. You end up with buildings that need massive repairs and the funds are not there to undertake them. Then the ability of associations then to assess their owners sometimes into the six figures to do major repairs creates a great difficulty.

If you haven't maintained the buildings, adequate reserves have not been funded, you end up with a problem many years on, which is a substantial cost of repair, a great difficulty in a board being able to pass a special assessment [inaudible 00:03:53], a lot of resistance from the owners and sometimes board members and you end up with a tragedy as what occurred in Surfside. You got a substantial cost, you got lack of adequate reserves, but there is a decision to be made.

It's a decision that eventually every condominium in Florida is going to have to make, which is when is the cost of repair so excessive that the actual termination of the condominium should be considered? I use the example of a condominium in Tampa that we represented. They were down maybe a little bit north of [inaudible 00:04:44] Stadium and the owners needed to be assessed about $30,000 each to do repairs, but the land was very valuable.

If the property was sold, every unit owner would have been able to realize $300,000 from the sale of the property upon termination. The question for that association was, do we go through the process of assessing our 54 owners, $30,000 each to do these repairs on these aging buildings, or do we move to terminate the condominium, put the property on the open market, sell it?

Rather than every owner being required to come up with $30,000 to repair the property, in theory they would each get a very sizable six-figure check, but then of course have to find someplace to live other than where they did. That's what the topic that we're going to cover today is, do massive repairs or do we consider termination, and what are the complications of each?

I'm going to invite my partner, Jon Lemole, to talk about what is the statutory of documentary duty of condominium associations to repair their buildings?

Jon Lemole:

Got it. Thank you, Alan. We're going to start with some basics, which will then segue us into the more meaty part of this discussion about the problem of aging condo buildings, but we've got to start somewhere. I expect that most of you on this discussion today are probably come from someplace other than Florida, may have experience owning a single-family home somewhere up in the Midwest or the Northeast or wherever y'all came from initially.

Think about a situation where you own a home. One of the primary responsibilities of home ownership is to take care of your home. It's a big investment, and so we're probably all familiar with things like replacing roofs and painting our homes and replacing siding or clapboard or stucco, if you had stucco up north somewhere.

Those are all the things that homeowners are well aware of, the types of repair and maintenance things that you do to keep your home secure, safe, water-tight, structurally-sound. When you buy a condominium, you're in a type of ownership which doesn't give you complete control over the place that you live. You can maintain certain things within your unit, but you rely upon some other folks and an association in particular to take care of the things that you can't take care of.

The law in Florida, as well as perhaps your documents, your declarations, but let's start with the statute, the statute imposes a very heavy burden on an association and its board, a fiduciary obligation on the board members, to look after the best interests of the property, the common elements that every unit owner owns a share of, but doesn't have the ability to take care of directly. Where do we find that obligation?

Well, we start with the statute. I'm going to share my here so we can all look at some statutory language. For a condominium, we start with Florida Statute, Section 718.113. That's the essential burden on an association where we find the burden of the maintenance of the common elements. You'll see I've highlighted in sub-section one there that the maintenance of the common elements is the responsibility of the association.

That's pretty clear language. The association can't work around that. There's no exception. There's no misunderstanding, no ambiguity there. The association has to maintain the common elements of the condominium. Now, the declaration may include some additional things and some additional burdens and so you always have to consider what the declaration say in addition to that.

But at the very minimum, you've got a statutory prerequisite, a command, an unambiguous command on the association to maintain the common elements. It's very important that each of you, if you're on a board or you're a manager, you're aware of this particular section, you understand what the common elements are, typically building exteriors, roofs, maybe balconies or certain portions of balconies.

There are certain areas that are going to be common elements and that are going to fall within this statutory obligation. There may be other things that are imposed by your declarations and so it's very important that you understand what those declarations are as well, and what the responsibilities of the association are. It's interesting.

I want to jump down here to Section 2A, because you're probably all familiar with the differentiation between maintenance and repair, and then the other section of the statute material alteration. Why that distinction is interesting is because a lot of you probably recognize that the association always having the responsibility to maintain and repair the common elements, doesn't typically need membership approval to do that.

Board can take on that obligation on its own and create assessments to fund that work. You're probably all aware of Section 2A which requires that if you're going to make a material alteration or substantial addition to the common elements or to association property, it has to be done in a manner that's set out in the declaration. The declaration may provide some directives about votes of the membership, what percentage of the membership vote is required.

In fact, in the statute, it gives you a baseline. If the declarations don't provide some method for determining what sort of membership approval is required for material alterations, then the statute provides a baseline of 75% of the total voting interest. Here's where this is interesting. I think many of you may have heard of a case on Longboat Key. It was called the Colony case, is a long and tortured history of a condominium, actually a hotel condominium, that eventually fell into disrepair.

There was a tremendous amount of litigation around that. Eventually it's been demolished and the condominium was involuntarily terminated, and is now being developed by a big real estate developer. One of the things that's interesting about that whole saga is that there was actually a decision in the bankruptcy court and one of the earlier litigations involving the Colony case, where you have a judge ... And this is law in Florida.

You have a judge that said that by allowing the condominium to fall into such significant disrepair and by overlooking its repair and maintenance obligations to such a degree, that the condominium essentially became unrepairable, that that was a material alteration. Therefore, by allowing that to happen without a vote of members, that exposed the board and the association to significant exposure and significant liability.

The association there had to pay a heavy price for that. Let's talk about what happens when the association doesn't perform its maintenance and repair obligations. Let's just jump down to Section 718.303, and a lot of you know this. I've highlighted the relevant language here, that actions for damages or for injunctive relief, injunctive relief being an order by the court for an association to do something, or both, for failure to comply with the provision to maintain and repair may be brought by the association.

Let's talk about what the unit owner can do. A unit owner can bring a claim for damages or injunctive relief against the association. In other words, a unit owner can compel the association to do what it's supposed to do under the statute and to maintain and repair the common elements. If the association doesn't do that or is found to be liable for not doing that, the unit owner prevails, then the prevailing party ... And I'm here in the red.

The prevailing party in any such action is entitled to recover reasonable attorney's fees. There's a case that was recently decided, I'll tell you it's a homeowner's association case, but the statute for the homeowner's association is very similar to the condo association. It's called Gonzalez vs. Coconut Key Homeowner's Association. Recent. A couple of years ago, appellate decision. In that case, a lot owner brought in a claim for damages and for an injunction against the association for failing to maintain a drainage swale.Now, here's the interesting thing about that case. The owner was not able to prove that the failure to maintain the drainage swale caused her lot to be damaged, but she did prove that the association was not maintaining the drainage swale. As a result of that, the court issued an injunction and told the association, "You need to maintain the drainage swale." And awarded the homeowner, the lot owner, the attorney's fees for bringing that action.

Even though the association didn't have to pay damages, they had to pay quite a bit in attorney's fees based upon that action. A unit owner prevailing ... Let's look at the green. A unit owner prevailing in an action between the association and the unit owner under this section, in addition to recovering his or her reasonable attorney's fees, may also recover additional amounts as determined by the court to be necessary to reimburse the unit owner for his or her share of assessments levied by the association to fund its expense of the litigation.

Takeaway there is, if a unit owner sues the association for failing to maintain and repair, and the association passes on an assessment to defend that litigation, the unit owner, if they prevail, is going to get basically credited back for those assessments. Let me end my screen share here for a second.

Alan Tannenbaum:

Jon, just to make it clear, even though 718.303 talks about individual board member liability, there's other sections of the Condominium Act which really strictly limit potential board exposure. To use the example of the Surfside situation, I think that the association under its liability policy is going to have significant exposure under that policy against unit owner claims for their losses, including loss of life and so forth.

It's very questionable whether an action against the individual board members of that condominium association would be successful because the board members were acting on engineering reports. They had actually assessed the owners to undertake the repairs, would be very difficult to prove a breach of fiduciary duty on their part and expose themselves to personal liability. I wanted to say that before any of the board members who may be on this call are saying, "Gee, with that statute, I ought to get off the board."

Because another section of the statute strictly constricts the exposure of individual board members. Frankly, unless you're stealing from your association or giving sweetheart contracts to your brother-in-law or using your power in any kind of vindictive way, mere failure to assure that the association undertakes repairs probably does not open up an individual board member to liability.

The association might have significant liability, but not necessarily a board member. Jon, did you conclude your section? I don't know if you had anything else to add.

Jon Lemole:

That was basically it. Now we understand what the obligation on the association is. We're going to probably take a look here what happens when the association doesn't perform or meet its obligations in a reasonable way. I'm done with the initial primer on association obligation to maintain and repair.

Salvatore Scro:

Okay. Thank you, Alan. I've been allocated about 10 minutes for this. I could go on forever, but let me just touch on some of the basic parts of this. As a result of what's happened in Miami with the collapse of this condominium, I've received a lot of calls. I'm sure Alan has and Jon has, from associations concerned about the structural integrity of the building, rightfully so.

Today it may not be an issue for many of them, but as a result, especially with those that have turned over and we have investigations, over time, if these issues aren't addressed, they can become problems. That's what we do. We represent associations to inspect, analyze, address these construction defect issues so that they can be remedied.

With regard to the insurance, for the managers out there, I'm sure that the majority of you, if not all of you, handle the insurance policies, obtaining them, renewing them. You will be receiving the applications. Those applications have various questions on them. Usually, the applications are provided to the manager from the agent that you're getting the insurance from. My advice is read it, read every question because they fill in what they believe to be the factual situation.

Many policies, if there's a misstatement or an untruth or something that was known that was not disclosed in the application, that would be a cost for the insurance company not to insure. I've seen it. I've represented associations where the application stated that a policy was never canceled a revoked. That was not the case. The owners did not fill out that application, the agent did, but they signed it.

They took advice from the agency. They've signed it and ultimately a collapse claim was in jeopardy because of that application. The policy renewal disclosures, those are important. If you don't know the condition, that may not be enough. If you do not investigate it, sometimes the insurance companies will. The insurance companies will come out there, send someone out there. You may know it. You may not.

They may come out and do an investigation and the next thing you know is you get a letter stating that, "We are canceling your insurance because of the condition of your building, or we are canceling your insurance for this other reason, or we are not renewing your insurance." How many of the managers out there have gotten a notice from their insurance company that says, "We won't be renewing your policy unless the stucco cracks are filled and the buildings are painted."

That is one thing that you need to be aware of, that sometimes stucco cracks are not just the drying cracks of stucco over time. Sometimes if you find yourself with uncontrolled stucco cracks, significantly large stucco cracks, these are things you should be investigating. You should be calling in somebody to say, "Let's investigate this." Especially if you're a building under 10 years old, you really want to investigate it.

Or if it's been a repair job that's under 10 years old, you really want to investigate it because you may have a claim against the contractors or the developers, whoever did that work, that may be resulting in a construction defect. The other thing you want to do is you want to look at your policies. Just don't accept the fact that you have a policy and it covers things.

I've seen problems with policies, from those that cover the contractors to those that cover the associations. You want to look at where's the venue? Where is it that I need to address this issue if there's a problem? Some of you have larger associations and you have a Lloyd's of London policy. You might want to read it because it probably calls for these issues if they have to be litigated to be addressed under New York law, in New York.

There's a difference between what New York would require and what Florida would require for example. What is the obligation in that insurance policy? When it comes to the condition of the buildings and what you're insuring and what may or may not be covered, you want to look at those things. The other issue with policies and not addressing the conditions of the building is that if you do have a claim, you will submit it to your insurance company.

They aren't always out there just to pay these claims. They're going to look at their policy very thoroughly, and they're going to send you what may be a reservation of rights letter. They're going to tell you what they cover, but 90% of the policy is what they don't cover. A lot of times they don't cover faulty workmanship, material, construction, installation. I'm reading from a reservation of rights letter. They don't cover from various subs.

They don't cover deterioration, depletion, rust, corrosion, wet or dry rock. Now, they may cover that if it's hidden. There are exclusions and then there are exceptions to the exclusion. Certain weather events they may not cover. It's important that you read those policies, because what will happen is you'll put in your claim and you're going to get a letter back saying it's denied.

I'm going to share for you with these older buildings you really need to sometimes take a look at what's out there and see. For example, you can see ... I'm assuming ... Jon, tell me if I'm wrong, but you're looking at a picture of a balcony out there. Is that what you see?

You're looking at a balcony out there and next, this is a stack condominium. This one is an older building. These balconies look to be in okay condition. I mean, but what's going to happen is ... Let me see if I can get there. Let's see, where did it go? Why is it not moving? Are you seeing ... Nothing changing. Why is this happening? Okay. In that area there, you're seeing that there is an area of the balcony that we're going to concentrate on here.

Here we go. This area of the balcony that you see shows a hole in the structure, the ceiling above the balcony. Here's a closer look at it. What you're going to find is this is the condition under there. This is what's holding these things up. You're seeing the structural steel that is supposed to be holding this balcony up, that it's not even there. This is what you have with regard to those ... Stop the share here. With regard to the conditions.

It's not just enough to paint the buildings. It's not enough to just look at these buildings. No. At the time of construction of this building, it's important to have an engineering study because what may be disclosed in the engineering study is that there are defects in the construction that are going to allow water intrusion. These are covered areas, the structural steel. There's no reason they should be rusting like that.

It's important with any new building to look at that, because over time, what is sold to you as a beautiful, nice project with a beautiful clubhouse area and pool is something that underneath you're not seeing what the issues are. Unlike a person, when you're having problems inside your body you might feel pain, the people in Miami know that they aren't feeling any pain until it's too late.

That's important. It's important to address the buildings, have them inspected, be proactive about that. I will end that part of it with that.

Alan Tannenbaum:

The question was asked about the policy defenses in the Surfside situation. Those policies will have an exclusion for long-term construction defects, so I'm sure the insurer will defend the case based upon the fact that this was not a spontaneous occurrence. This was a result of long-term deterioration of the building, and therefore not covered under the policy. They probably would also establish a defense that the association making application failed to disclose these engineering reports that they had.

Again, the practicality is knowing that that case is going to end up in front of a circuit judge in Dade County, who is not going to give the insurance company a summary judgment, and might eventually end up in front of a Dade County jury. I'm very sure that that case is going to end up settling, even though the insurer on its face, may have some valid defenses. Before I get into termination, there's a few questions that have come by.

Louise has asked, "What if the board tries to address issues, hold votes, but only 74% of the owners approve, can the owners who vote to sabotage the actions be held responsible in some way?" Usually, a owner vote is not required to undertake maintenance and repair obligations and pass a special assessment for the undertaking of those. I don't know what vote that you're talking about. The way a repair worked is the board gets the investigation done, maybe it gets a determination from an engineer as to what repairs are necessary.

The owners need to be noticed at any meeting where a special assessment is going to be considered, but other than have a say at the meeting, it's actually up to the board to vote on passing that special assessment. The owners under most condominium documents should not be able to block the board going through with necessary repairs. Thomas asked, "Will the 40-year requirement for inspections be adopted statewide and how soon may it be adopted?"

I don't know if that's going to occur. Right now it's only in Dade County. I think waiting 40 years is too long. I would like to see it at a minimum have to occur after 20 years. There are groups that actually get an engineering inspection done every few years on their own, so having regular engineering inspections is the best way to go, but when the legislature will act, I don't know. 

Salvatore Scro:

There was one question out there about, does what we viewed just now constitute a criminal liability? I think that had to do with the photos we showed just now of the structural steel. I think that that's not really a question that we could answer specifically. There are many factors that would go into what would be criminal liability. We don't really address the criminal statutes. We do know that if you're aware of a problem, you do have the obligation to maintain. I think Alan can address that more because that issue was brought up in this Colony case.

Alan Tannenbaum:

Probably not there being criminal liability. Unless you're a board member stealing from your association or using your powers vindictively, I don't see a base for either civil or criminal liability on the part of a board member. The last question I'll answer because I want to get into the termination side, somebody asked, "Can a board member still be sued even though there's not liability? Is there exposure for attorney's fees and costs?"

Frankly, that's the main reason why every board should have a fiduciary liability insurance, mostly to cover the defense of an action. Most of the actions are not going to be successful, but it is going to cost money to defend them. That's primarily why you need that insurance in order to cover the defense cost. I'm going to get into termination. The statute in Florida is very cumbersome when it comes to termination. It's not easy to terminate a Florida condominium.

I want to go through fairly quickly the processes. It's all covered under 718.117. It's a fairly likely statute. There's one section that talks about termination because of economic waste or impossibility. It's a very difficult threshold to terminate under that portion of the statute, because the estimated cost of construction or repairs actually has to exceed the combined fair market value of the units after completion of the construction or repair.

It's very doubtful whether any condominium in Florida is going to meet that threshold. The second requirement. It has to be impossible to operate or reconstruct the condominium in its prior physical configuration because of land-use regulation. That particular section of the statute, economic waste or impossibility is likely only to be utilized where let's say a condominium is substantially destroyed in a hurricane. You'll have termination under that section.

That only requires if you do it under that section, that the amount of the membership vote is what's required in your documents to amend the documents. It might be 75% or less, or if there's a specific termination section in your documents. Most groups will not qualify for termination because of economic waste or impossibility. In a project termination, most groups are going to look at 718.1173. This is where a board of director submits a termination plan.

First has to be cleared by the division of land sales and condominiums, but it requires 80% of the unit owners agreeing to the plan of termination. It's not 80% of the voting members at a meeting where a quorum is present. You're talking about a full 80% of the membership have to agree on the termination. It's a very high threshold in order to undertake termination.

The real problem with the statute is that even with greater than 80% approving the termination, 5% of the membership can block the termination. In the condominium I talked about before, it was a 54-unit condominium in Tampa. The bulk of the membership wanted to terminate, collect a large check rather than pay $30,000 a unit to repair. There were more than 5% of those 54 owners who did not want to terminate. Of course the same people didn't want to pay the assessment either, but that's besides the point.

Those few owners were able to block the entire termination. Now, even if there's an impetus to terminate, you have the approval of more than 80%, there's a lot of due process requirements that are built into the statute. The mortgage holders are entitled to be protected. All of the obligations of the association have to be taken care of and accounted for, and you have a big problem with the provision in a termination plan of how the money in the eventual sale is going to be allocated.

There are a few different ways under the statute that valuation is determined. The key is that all of that is subject to challenge by any objecting owner, which then will send the termination valuation into mandatory arbitration. Then you have a full trial on whether the valuation was appropriate, the determination of how much each owner will end up with upon termination that will be entitled to. It may take quite a long time.

We did a termination where it was a 20-unit condominium, all the owners agreed to terminate, and it still took six to eight months to complete the termination process with really no objectors. The process will likely ... If there's anybody objecting, the process could take a year, a year and a half, or two years. Here's the problem. While the termination is proceeding, the association still has an obligation to maintain and repair.

It creates a situation where there is this period of time where the association still has some substantial exposure and it's going to take time for the process to conclude. There also may be a period of time where the units are no longer occupiable and the sale hasn't closed, which may take several months. You may have a situation where people are going to have to be housed or find housing and where they still haven't realized the proceeds of the termination.

There's a lot of issues in carrying it out. I personally think that the statute needs some revision. I think the percentage maybe needs to drop down from the 80%. I think that a higher percentage would be required to block the termination, but right now, 5% of the membership can block it. I think there needs also to be greater protection for people who are caught in the middle before the termination actually closes of how they're going to be taken care of as far as their living conditions and so forth.

It's quite a cumbersome statute. Now, there is a one-paragraph statute, 718.118, and it's called Equitable Relief, but I call it a judicial termination. This is the way the statute reads, "In the event of substantial damage to, or destruction of all, or a substantial part of the condominium property and if the property is not repaired, reconstructed or rebuilt within a reasonable period of time, any unit owner may petition the court for equitable relief, which may include termination of the condominium and a partition."

Now, it seems like that statute, again, was created for a hurricane situation where a substantial part of the condominium was actually destroyed, but it talks about substantial damage to, or destruction of all, or a substantial portion of the condominium. Now, in the Colony situation, you had the condominium buildings were under state of disrepair. A unit to actually used that statute, 718.118, brought an involuntary termination proceeding.

Again, there was no major hurricane damage, the buildings were just in disrepair and the owner was able to successfully terminate that condominium by judicial decree. You may see under 718.118, where you have a situation like the Surfside situation, where the building is in the state of disrepair, the board is not taking appropriate action. You may get into circumstances where 718.118 judicial termination is going to be utilized by a unit owner to request a circuit judge to actually terminate a condominium where the board is not following through on its maintenance and repair obligations.

Now, in the Colony it was pretty drastic. The buildings had deteriorated to the point where they couldn't be occupied anymore and the board was taking no action to repair. In fact, in a fairly unusual circumstance, the president of the association went to the town, invited the town out to do inspections, hoping that the town would actually condemn the buildings. The reason that occurred is the association could not garner the 80% vote that was required to voluntarily terminate the condominium.

It ended up actually the association through its court cooperated with that one owner who filed the judicial termination. They joined in that action and they circumvented the statutory requirement for approval by utilizing a judicial determination under 718.118. You may see more of those efforts coming, but right now the termination statute is difficult to work with, but eventually every condominium in Florida is going to reach the point.

It may occur this year or five years from now, or 10 years from now, or 20 years from now, where the cost of repair is going to be that excessive and the exposure of the association is going to be that great, or the building's reached a point where they're uninsurable because there's no insurance company, based upon the status of the condition, who's going to be willing to insure that building. That there's really going to be no choice on the part of the association, but to consider termination.

It ends up being that rather than face an assessment that may be six figures per unit owner, that it's going to make economic sense to terminate that condominium, sell it to a new developer who's likely going to raze the building, raze being R-A-Z-E, not R-A-I-S-E, raze the building and build a new development on that property. The proceeds of that sale will then be distributed among the membership who will then have to find a new place to live. That's basically how termination works.

What all these buildings are facing is undertake the proper engineering studies, listen to what the engineers say about what's necessary in order to prolong the building and make it safe, and either undertake those repairs and assess the owners to do so, or consider the possibility of termination. Then you get into that very difficult period of, what does a board do as far as maintenance and repair and occupancy while the termination is proceeding?

Again, the termination could take a year, a year and a half. There may be some statutory amendments that need to be made to the termination statute to make it a little bit more user-friendly on how it's undertaken. Let's see if we have any questions that we can face. There's a question from Christopher, "How about loss of property due to dissolution of the condominium?" Again, there should end up being an upside. I don't know what property Christopher you're talking about.

The question about insurance companies taking a hit, all of the boards and management know that there's just been a tremendous increase in the premiums that you're facing. Unfortunately, I think the Surfside situation is just going to make your insurance situation even the more difficult. That's why you're going to find, and based upon what Sal indicated, that you may find that there's more insured ... insurance companies are going to step up and refuse to actually issue insurance policies to some of these older properties, which is a problem. Let me see.

Michelle:

Alan, there's a question from a property manager that she wants to know what is the like ... Basically ... I'm sorry, I'm trying to find it now. From Pat, it's, "What is the responsibility of management company to recommend qualified vendors and follow through on work being performed?"

Alan Tannenbaum:

Okay. Any question that starts as, "What is the responsibility of a management company?" I always hesitate to answer that because their management contracts are written so wisely that management companies identify themselves against most kinds of liability. It certainly is part of a duty of a management company to help the board locate vendors, certainly to advise the board on the best way to undertake it.

I mean, one of the services that we provide as construction lawyers is that management companies bring us in to support the board in the contracting for repairs, for enforcing of the contract while repairs are going on, and if a repair job goes south, to help the board enforce the project. That is generally a role that the management company's taking on. What legal responsibility they have is dependent on what their contract would indicate.

Michelle:

This could be a question for either Sal or Jon. What is the description of the inspection that you ask for structurally maintenance-wise and which licensed professionals can do these? Then somebody else asked if they know of some issue, what is the obligation of the engineer to report the issue?

Salvatore Scro:

Well, as far as the type of inspection, it all depends on what you're doing. If you have a newly constructed condominium or homeowner's association that was turned over, you would want an investigation by a qualified engineer to do an investigation of the common elements. Now, would that start out with a visual inspection and then possibly a destructive investigation? None of you can really look at something and say what is beneath it.

We don't have that X-ray vision, so sometimes ... And I actually just received a call today from someone who is in the insurance business, who has an issue with a home that has water intrusion. They're aware of what goes through with this issue and the problem is, is that you don't really know where problems are coming from. If you see a symptom, if you have water intrusion or something, then you know, "Okay. There's a problem. I need to find out what the answer is."

You would ask for possibly ... And this is why, if it's something where you can address it to hold the potentially liable parties responsible within the statute of limitations or statute of repose, we always like to be involved in something like that, because we are able to direct you to the appropriate engineer. What it's called, there really is no name for it.

If you're not certain, then you should contact someone to help walk you through it. Don't take it on alone is always our advice, because sometimes you bring in somebody and they're going to give you an opinion. You may bring in somebody that's a roofer, but they're going to tell you about roofs. They're not going to tell you about the framing that may be causing the problem or other issues that are causing the problem.

Now you have an opinion in there that's going to hurt you if you don't know who the proper person is to bring in. That's one issue. I did see a question here that was, "Say the pool is an amenity and is leaking and to repair it is very costly. Can the board just decide to close the pool without an owner vote?" That was from George. Thank you, George.

No. I mean, the pool in all likelihood is an amenity that to take it out or to discontinue it would be a material alteration and cost is not a determining factor. Although it does play a role as Alan talked about, whether or not that cost would be considered economic waste. Sometimes you need to put in a whole new pool. To just say, "No, we're just going to close it up unilaterally." I think would be a problem.

Jon Lemole:

Hey, Sal, I mean, just to jump in and take the next step on something you had said about engineering. Folks, we're focusing on aging buildings today, and finding out whether there are things that need to be addressed or should have been addressed, but there's a huge opportunity and I bet there are some folks on here who are in newer buildings. It always struck me as odd. If I bought a house, I'm going to get a home inspection done.

I'm not going to have the seller give me their inspection or have the seller do an inspection report and hand it to me. For those condominiums going through turnover, think about what typically happens under the statute that the developer gives you an engineering report and says, "Here's our engineering report. The building's great." That's not always the case.

I'm not saying that it's not the case, but sometimes there are issues, which if you had uncovered them during or shortly after turnover, you'd be able to address them early on, perhaps get the developer to pay for it and not exacerbate a problem, or find that the problem over 10 or 15 years has been exacerbated and now you have a really big problem to deal with and no recourse.

I just wanted to take a second to underscore that the real importance here, for even newer condos, when you go through turnover and that board takes on the responsibility for maintaining millions and millions of dollars of property ... And these folks may be well-meaning educated people, but don't know much about roofs and stucco and building, waterproofing and roads and parking lots and asphalt and drainage systems and so on and so forth.

There's a huge opportunity to take and get an independent forensic engineering report and make sure you have a baseline of knowing what your building may have to deal with down the road. If there are problems, you can address them now, possibly get compensation for them, that they don't become bigger problems in the future and result in this situation where now you have a huge assessment to fix something that could have been fixed years ago, and what are we going to do about it?

Now you're dealing with that situation of an assessment versus termination. Don't overlook that possibility for you folks that are in newer buildings.

Alan Tannenbaum:

Good point. Folks, we're going to stay on because I know there's a lot of questions that haven't been answered yet. We'll stay on for a few minutes. Darlene had asked a question, if she's still here, "What inspection rights does a prospective purchaser of a condo unit have? Can the purchaser review engineering/structural inspection reports?" A very important distinction. A prospective purchaser's entitled only to a very limited amount of information.

There's a question and answer sheet that they can see. They also will receive an Estoppel letter about the assessments that are due, but they're not entitled to engineering reports or board minutes and so forth. The appropriate thing for a prospective purchaser to do is have the seller of the unit secure that information for them. The seller's entitled to get that information, not the prospective purchaser.

We get calls all the time from managers and board members saying, "We got this request from a realtor for a prospective purchaser for a whole list of items." It's our general advice that that information not be supplied, if not for the fact that, number one, managers would be spending half their day responding to those types of inquiries.

Secondly, then the unit owner seller comes back and says, "Why are you interfering with my prospective contractual relationship on the sale? I didn't ask you to supply that information." It's really a second reason not to doing it. There's a question from Elizabeth, "We're in the process of repairing our EIFS system. That's a wall system. We have owners who are refusing to buy windows, which is holding up the project. We started arbitration, but anything else we can do?"

Number one, I would probably consider amending the document so that window replacement is not within the purview of the individual owners. There're some documents that are written that way, where the association is responsible for the exterior wall system. The owners are responsible for replacing their windows. Long-term, that's a very poor combination because it's very difficult to control the quality of work that an owner's doing, as in your situation.

It's very difficult to force an owner to do the window repair. I don't think that ... Apparently that arbitration was filed. It doesn't seem like an arbitratable issue, but I will leave that to your association's counsel.

All right. There's a question about engineering liability. Is the engineer liable if he says that the building is in danger of collapse and it does not? Well, frankly, I think out of the situation in Surfside, you're going to have a lot more engineers who are going to err on the conservative side and say that, "Based upon my evaluation, there is a risk of collapse or some major structural issue occurring."

I don't think an engineer is going to be liable for saying the building is in danger of collapse. I think the potential for greater liability, unfortunately, for the engineer is in somehow saying the building's not in danger and then a few days later a major problem does occur. Probably for the engineers, their exposure is going to be greater by not red-tagging a building than it is if they did. A question-

Michelle:

Sal, did you want to add anything to what Alan was saying?

Salvatore Scro:

No. I was just looking at another question here about, are insurance companies obligated to satisfy a total loss claim when the building is deemed unsafe via an inspection as in the Crestview Towers in Miami? Well, always read the policy and what it covers and what it doesn't before something happens as you're getting those policies. What we're talking about here is would an insurance company cover a collapse claim? Different policies have different language.

Some defines a collapse as an abrupt falling of a building or a part of a building. It states if a certain part of it is standing, then that would not be considered. Going back to the question Alan just answered, and if you have an engineer deem a building unfit or unsafe, that doesn't kick in coverage. What that kicks in is that you associations haven't been taking care of your building, unless there was some construction defect in there, in which case then maybe an inspection wouldn't uncover it or something like that.

The insurance companies are going to answer it like that. You have an obligation to maintain. What you find is the policies, some that will cover collapse as a result of hidden damage or vermin or rot or decay. It will cover that if there's a collapse and then it kind of defines collapse as a part of a building. Well, what's part of a building? Is it just one framing member?

If it's vague, I think you have a good argument, but will they just cover and say, "Oh, you're in danger of collapse, so now we're going to give you all this money to repair your building." Highly unlikely. That's why it is important to get inspections. I did see another question. What type of inspection should a 23-year-old two-story unit should do and how often? The answer is, it depends.

If you've had inspections over the years, you can look to those and see if there were any warnings within those inspections. If you have symptoms of problems, then you should address them. If your construction is weather-resistant versus wood frame and sheathing, then you have other issues. It depends. I think the owners on the board and the management know the history of the building.

If you're repairing the same thing over and over again, or maintaining it over and over again, then probably you should have an inspection. It depends on the building. It depends on what you're doing, but if you're concerned and you wanted to do something like that, then possibly just hire an engineer to do a walk-around.

If you're concerned about that, again, if it's within 10 years of any work being done, then I would suggest calling a construction defect attorney to get a recommendation from them as to who they would want to do that walk-around. I know for example, I have plenty of associations that will contact us and I will get in touch with the appropriate engineer and in no charge they'll just do a walkthrough and say, "These are areas I'm looking at that may be a concern and they need further investigation."

Sometimes there's no charge to that. Sometimes there's a reasonable minimal charge to that walk-around. It depends how in-depth you want to do it.

Alan Tannenbaum:

Yeah. As far as Henry's question about how the insurance companies are going to respond to a Crestview Tower situation, where before there was a collapse the building say was condemned, the owners were forced out, versus the situation in Surfside. You're going to have a much more aggressive defense likely by the insurance company in Crestview Towers to dispute the claim than you are going to have in the carriers who are involved in the Surfside situation.

Again, the fact that there was loss of life or the fact that there was an actual collapse may set a much more difficult case to defend for the insurance carrier than a situation where there was not an actual collapse and there were no, fortunately in Crestview Towers, no personal injury. I think you're going to see a different approach by the insurance companies in Crestview Towers versus the situation in Surfside.

I'm getting a very persistent question from John about material alteration versus maintenance and repair. We actually give a full presentation on this, John, if you're still there. If a repair is required for the maintenance and repair of the building which alters the common element, there's an argument that the repair obligation will supersede the material alteration restriction.

You get into situations where let's say a particular portion of the building needs to be repaired and in order to do so, you can't recreate what was installed originally, either because the building codes have changed or because a particular product or material is not available. It's very likely under those circumstances that the material alteration restriction is not going to block that repair, but it will be on a case-by-case circumstances.

A question from Donna and we're going to cut it off shortly, "What type of report is needed for an older building, 50 year, five stories?" In Dade County, it would be a very comprehensive report, but no matter where you are, there should be a very thorough structural examination. It should be mechanical and electrical. A 50-year-old building that's five stories tall, it would be prudent for that board of director to get a full-blown inspection, mechanical, electrical, structural in order to know what's necessary for the repair.

All right. Louise, this is the last question we'll cover. Window question comes to the issue of what is necessary report that board can ... I guess the repair the board can mandate and assess without a vote? What is merely a material change the owners have to vote on? The difference is unclear. All right. Louise, I can cover this very ... The primary obligation of the association is to maintain and repair.

It may be in undertaking the repair that there will be an incidental material alteration. If it's incidental to the repair, it's likely not going to require the vote. If it's a significant alteration and not justified necessarily by a repair, then you're going to probably need the vote. In each circumstance, it's going to be a very careful analysis of the particular facts.

Frankly, if you have enough of the vote in order to get a material alteration passed, you might as well have the vote, but if it's necessary for repair, the association may go ahead without the vote. It depends on the facts and circumstances. All right. Was a lot of questions. All right. Elizabeth has asked a question about arbitration. Again, you're probably best to go back to your association counsel.

I'm not quite sure why that issue is being arbitrated, but I can't, without seeing the documents, help you. Last question, Martin, "Who would want to become a director given what is unfolding at Surfside?" That's a very tough question. It is going to impact the ability of folks who are going to want to be directors. Fortunately, as I indicated before, the liability exposure for an individual director is very, very narrow under the Condominium Act.

I don't think the individual directors are going to have liability at Surfside based upon what we know about the news reports. The board was ... they gathered the engineering reports. They had assessed the owners for the repair. They had no indication from any engineer that the building was at threat of imminent collapse. I don't see it as a situation where the individual board members have liability exposure.

With knowing that the personal exposure is a very narrow window, then I don't think it's a great risk, but yes, you raise a good point.

Salvatore Scro:

Let me just add something to that. That is a concern and one of the things you can do as the individual board members, when you have these meetings, you have minutes, you can make your positions known in those minutes. However, and we caution about what goes into minutes, if you are going to bring these issues up, and there is a potential claim, then understand that all these things that you put into the minutes can trigger a statute of limitations if you have to address a construction defect issue.

If you're finding a symptom or you're talking about possible problems with your building, and you're getting that into the minutes, you're building a record that says you knew about a problem, or you should have known about a problem at this particular time. If your dog starts barking, then the statute of limitations will end four years from when you should have taken some action on it.

When you get this information and you build your minutes, keep in mind that you should seek some consultation as to what you should do if there's a potential of addressing a claim against somebody to recover for it.

Alan Tannenbaum:

All right. Folks, past 12:50. We're going to call this one a wrap. Anybody who has any questions can ask us offline. We'd be happy to answer some additional questions. This is a wide topic. We probably could talk about it all day. Thank you for your attendance today. We will try to answer as many questions as we can offline. Everybody, be safe on the West Coast as this tropical storm passes by.

We will see you for the next one. Michelle will take care of all the managers CEU credits. We're going to say goodbye at this point. Thank you for attending.

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Why do we need a construction defects’ lawyer to negotiate our defect claims against the developer? Why can’t the Board negotiate on its own?

The Board can negotiate on its own, but it may not be wise. Here's why:

  1. Preservation of Warranties: For condos, steps should be taken to preserve statutory warranties, which are limited in time. A construction defects' lawyer would be attuned to these and act to preserve the warranties while negotiations proceeded. A condo board acting alone could inadvertently allow warranties to run.
  2. Not Allowing Claims to Become Time Barred: Both the statute of limitations and the statute of repose limit the time allowed for pursuit of claims. A construction defects' lawyer would be attuned to these and act to preserve claims while negotiations proceeded. A condo or HOA board acting alone could inadvertently allow claims to become time barred.
  3. Identifying Responsible Parties: Construction defect claim recovery is often only maximized where parties beyond the developer are included in negotiations. A construction defects' lawyer will identify all potentially-responsible parties and include them in negotiations if necessary to bring about full recovery. A condo or HOA board acting alone could fail to include necessary parties beyond the developer and thus hamper the association from achieving maximum recovery.
  4. Compliance with Chapter 558, Florida Statutes: This statute requires that notice to the developer and other responsible parties be drafted in a particular form and sent via certified mail. After notice is sent, the responsible parties have the right to inspect the property and request documents from the association. A construction defects' lawyer would be sensitive to the requirements of the statute and assure that the association meets the conditions of the statute. A condo or HOA board acting alone could fail to comply with the statute, prejudicing the association's position if the matter ended up in court.
  5. Preservation of Evidence: A construction defects' lawyer would know that steps need to be taken to preserve evidence, and be aware of the consequences if evidence is not properly preserved. A condo or HOA board acting alone could fail to properly preserve evidence, prejudicing the association's position if the matter ended up in court.
  6. Determining the Settlement Value of the Claims: An experienced construction defects' lawyer will have significant experience in valuing claims and be able to advise the board on what would constitute a fair resolution. A condo or HOA board acting alone could fail to recognize the value of the claims and as a result aim too low or too high in negotiations.
  7. Negotiating Prowess: A experienced construction defects' attorney can present the claims in their best light and direct a negotiating strategy maximizing the association's leverage. Furthermore, just the appearance of an experienced construction defects' lawyer leading negotiations for the association is a clear message to the responsible parties that the association is serious about securing a fair settlement. A condo or HOA board acting alone would not nearly be as formidable in conducting negotiations on behalf of the association, leading in many cases to mediocre offers by the opposition.
  8. Making Sure the Settlement Paperwork is Right: Once a settlement is reached, it is customary for a settlement agreement to be drafted. A construction defects' lawyer will negotiate terms which best protect the association, including not waiving rights to pursue latent defects which might arise post-settlement. If the settlement involves remedial work, protections would have to be incorporated to assure adequate performance, including the establishment of warranties for the repairs to be performed. A condo or HOA board acting alone would not be aware of necessary settlement clauses to be included and others to be avoided.
  9. Justifying a Settlement to the Owners: Owners, either at the time of settlement, or even years after, may challenge the adequacy of the settlement reached. A Board will be in a much better position to justify the settlement reached if it is a able to report to the owners that an experienced construction defect lawyer was there every step of the way in advising the Board, including that the settlement reached were reasonable.

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My Building Might Be Defective – What’s Next?

 Controlling The Compensation Game With Three Decisive Plays

We are fortunate to live in a world where our vehicles are equipped with a "check engine" light to alert us to impending problems with our cars. Wouldn't it be wonderful if buildings came with the same type of warning system? Unfortunately, the first hint of a design or construction flaw in our buildings might only happen when it's too late. Water intrusion, stucco cracking, roof leaks - to name just a few – are most often the outward signs of more sinister latent design or construction defects that can spell significant economic hardship to come. Facing such conditions, a smart building owner or community association board will act decisively to control the risks of spiraling repair costs or crippling special assessments. In the spirit of March Madness, here are the three most critical moves a smart building owner or community association can make to win the game of securing compensation from the responsible parties.

1) Manage the Game-Clock (The Statute of Repose)

Many a building owner or community association has been stuck paying for the sins of an architect or general contractor simply due to poor time management. Florida gives building designers and contractors an absolute bye for their defective work after ten years. You may have a slam-dunk claim for design/construction/repair defects, but if you don't start a lawsuit within ten years, it's game over. And, by "starting a lawsuit" our courts mean the actual filing of a complaint in Circuit Court. If you suspect that there are design, construction, or repair flaws with your community's buildings, you should immediately consult an experienced construction defect lawyer. An early start to negotiating with the responsible parties may save you from a late-game scramble to file a costly lawsuit in order to protect your claim.

2) Manage the Shot-Clock (The Statute of Limitations)

Sometimes you may have plenty of time left on the game clock, but Florida law also imposes a second deadline on claims against a design professional or contractor. You must commence a lawsuit for construction defects within four years from the discovery of the defect. If your building is leaking, or if stucco is debonding from the exterior, don't let time significant time pass without investigating the causes of these conditions. Between hiring claims counsel, securing the right engineering studies, gaining necessary membership approvals, four years from discovering building leaks or stucco problems can pass at the speed of a late-game fast-break.Therefore, at the first sign of a defective design or construction condition, seek the advice of experienced construction defect counsel to begin preparing for the possibility that the only way to get the responsible parties to pay up is through litigation.

3) Get Your A-Team On the Court

Winning the game against large and well-funded design and contracting firms requires a team of game-tested veterans. Putting the wrong lawyers, engineers and other experts on the court is like putting a squad of rookies up against LeBron's Lakers. At the first sign of possible defects in your buildings, you should consult a law firm that concentrates on representing building owners in construction defects claims, and who can recruit the right team of supporting players. Securing compensation from architects and general contractors is a highly specialized undertaking. It typically requires engaging forensic building engineers who are not just good at engineering, but who can also handle themselves under intense questioning from highly-paid construction industry lawyers – that's a very niche skillset indeed, but one which will go far in helping your side control the flow of the game right from the first whistle.

In conclusion, at the first sign of building defects, you have a critical choice of plays. Act decisively to control the game and secure compensation for what may be very costly repairs. Or let the game control you and end up eating large and unexpected repair costs. Follow these three, crucial, early-game strategies and you'll give yourself or your community the best chance to avoid paying for the mistakes of your building's designers, builders, and repair contractors.

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What is the appropriate role for a Transition Committee?

While a Condominium or HOA deed-restricted community is in its sales period, the developer will control the operation of the governing condominium association or HOA by appointing the majority members of the Board of Directors of the Association. Often, either through the impetus of the developer, or organically through the efforts of interested owners, a transition committee of owners will be formed during developer control to begin preparations for the takeover of association control by the unit/lot owners.

Motivating the Developer to Meet its Turnover Obligations

With a recalcitrant developer, sometimes it is the role of the transition committee to remind the developer of its turnover obligations both as far as the timing of turnover and the documentation which is required to be turned over by the developer at the time of transition.

Information Gathering

The primary role of a transition is information gathering. This can be from various sources. Under both the Florida Condominium (Chap. 718) and Homeowner Association (Chap. 720) Acts, unit or lot owners are entitled to request and inspect a myriad of association documents including contracts, financial information, and board and association minutes. Documents and records pertaining to the community can also be accessed. These would include the development order for the community on file with the municipality or county involved, building department records and correspondence, and records retained by the applicable water management district.

Interaction with Governmental/Regulatory Authorities

The pre-transition period is an appropriate time for a transition committee to introduce itself to county/city and other regulatory officials. Often there is a completion bond placed by the developer with the county or city. The transition committee is in the position to educate local officials on what requirements have not been met by the developer in order to justify the release of the bond and to embolden local officials to condition the release of the bond on the completion of these requirements. For water management districts, there are sometimes compliance issues which the developer may have failed to address which the district can be reminded of in the hope that the district will push for compliance while the developer remains in control.

Condition Inspections

The transition committee can inspect the common areas of the property and provide a list of construction concerns and more to the developer. If such a list is provided, it should be made clear that it was compiled without the assistance of third-party experts and is not intended to be all-inclusive. The developer is free to undertake the repair of items on the list. The transition committee, however, should not in any way be representing that it is "signing off" on any of the repairs, as it lacks the authority to do so.

Promoting a Slate of Candidates for the Initial Owner-Controlled Board

Because the transition committee has put in the "sweat equity" to discover and understand the challenges which will need to be confronted by the owner-controlled board upon transition, it makes sense that the transition committee should run and promote a slate of candidates for the owner-controlled board upon transition.

What the Transition Committee Should Not Do

The transition committee does not have the authority to settle anything with the developer. It should avoid "signing off" on any lists of repairs/actions by the developer, or purporting to bind the unit or lot owners in any way. The committee is a voluntary group of owners with no recognized authority and in its communications with the developer and others the committee should reiterate this.

Conclusion

A transition committee can serve a valuable purpose in reminding the developer of its obligations, preparing the community for transition, and empowering governmental and regulatory officials in holding the developer to account. The committee, however, should scrupulously avoiding overstepping its authority or purporting to approve any proposals put forth by the developer. 

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Turnover? Why you need to hire an experienced construction lawyer right away!

"Turnover" may be the most important event in the life of a condominium or homeowner association.Turnover transfers association governance from the developer to directors who are answerable solely to members and their wallets.Newly-minted owner-directors must manage millions of dollars of infrastructure such as roads, drainage systems, ponds, lift stations, and pools.For multi-family buildings, this can also include building roofs, stucco, paint, waterproofing and balconies.Florida law imposes a fiduciary duty on these volunteer directors to make well-conceived, long-term plans for maintaining and replacing these assets.The critical nature of this planning suggests that every post-turnover board consider hiring an experienced construction claims lawyer to assist in guiding the association through a successful completion of the turnover process.Let's explore 3 reasons why this is so.

1. The developer wants to walk away scot-free.

At turnover most developers want to resolve any lingering, obvious construction quality disputes with a cash settlement and a general release of all future construction-related claims.Working in tandem with the right forensic engineers, a construction attorney can assess whether there are any non-obvious, latent construction defects impacting the useful lifespan of major common elements.By foregoing this critical guidance the board may financially short-change its members, setting them up for large, unanticipated maintenance, repair and/or replacement assessments in the future.Don't fall victim to releasing a developer, only to later discover hidden construction defects requiring a surprise assessment.

2. The clock is ticking

Florida community associations have just ten years from completion to discover hidden construction defects and to sue the developer for compensation.In our experience the worst construction defects are rarely obvious.Hidden defects in roads, drainage systems, roofs, building envelopes, foundations and the like are rarely discovered without the right types of forensic investigation.An experienced construction defects lawyer knows what types of investigations to recommend in order to discover ticking time-bombs which may not go off until after the developer's immunity kicks in.

3. Statutory Warranties for Condominiums

Florida condominiums get an added benefit of extremely valuable, but limited-duration, warranties from their developers.Warranty claims are particularly impactful because the association need only prove that the covered element was defective within the warranty period.This is another example where an experienced construction attorney can assist in guiding forensic engineering investigations for maximum impact.Defects discovered outside the warranty period are often less valuable litigation claims against a developer than those discovered during the warranty period.Don't give the developer another free pass by ignoring the compelling compensation value of latent defects discovered while the developer's warranties are in existence.

To conclude, post-turnover, volunteer board members carry a heavy burden to be good stewards of their community's infrastructure, avoiding the surprise of unexpected repair or replacement needs.An experienced construction defects lawyer is crucial in guiding a new board through a complete investigation of its potential claims against the developer, ensuring that the developer – and not the association - bears full financial responsibility for the developer's defective work. 

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