View full article below. Published in Herald Tribune, July 7th by Derek Gilliam
View full article below. Published in Herald Tribune, July 7th by Derek Gilliam
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.
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."
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 :
Full article below :
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.
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.
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.
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.
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 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.
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?
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.
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.
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.
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.
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.
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.
Alan Tannenbaum, a board-certified construction lawyer, told Insider more than 400 attendees recently showed up to an educational 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
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?
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?
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.
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.
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.
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.
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.
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.
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.
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?"
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.
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?
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.
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.
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-
Sal, did you want to add anything to what Alan was saying?
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.
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.
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.
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.
The Board can negotiate on its own, but it may not be wise. Here's why:
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.
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.
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.
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.
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.
"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.
SRQ Magazine names Tannenbaum Scro as one of the Honorees for their Elite Attorneys issue.
NORTH PORT — The coronavirus excuse may no longer work.
North Port this Thursday resumes its code enforcement hearings, a court-like setting for those breaking, ignoring or contesting ordinance rules.
Code enforcement was interrupted in March, then slowly restored over COVID-19's smackdown that closed city hall and suspended many such services.
North Port's last code enforcement hearing in February was highlighted by a woman ticketed for letting her chickens roam the neighborhood. She won that case.
Thursday's hearing at city hall, however, has pages of backlogged code violations in some stage of resolution. Violators face Hearing Officer James E. Toale, a Sarasota real estate lawyer. His job as judge balances North Port's rules versus people's rights. Hearings in normal circumstances run on fourth Thursdays, 10 months of the year.
Toale's looking at nine pages of cases when things get rolling at 9 a.m.
The ultimate goal is correcting code violations, said Kevin Raducci, the Code Enforcement division's manager. He has four city inspectors, one vacancy.
"The last thing we want to do is take (violators) to court. We're not about fining … rather fixing, trying to work with people."
There's plenty happening Thursday. For instance, one man was ticketed for an unlicensed gym in his garage, others for cutting trees without permits, not cool in North Port, a Tree City USA town.
And others are cited for junked stuff laying about their property — tarps, mattresses, paint cans, busted furniture, pool supplies, plastic jugs and a pit with half-burned trash — illegally parked cars, trucks and a forklift, missing address numbers, other miscellaneous code violations.
Those who don't comply are given property liens or fines, all others returned to good standing.
Inspectors will get complaints or tips, but they work a beat and understand city codes, Raducci said. He rotates routes to keep things fresh. The inspectors first issue courtesy notices and tips for correcting violations. The violator has five days to respond, time to comply.
Penalty fines escalate quickly for those skirting the rules, however.
The inspectors also respect your rights. They're not allowed, for example, to peer over your fence, but may look through one. The may also view your place from neighboring property.
Inspectors are badged, wear a name tag, a black pullover with the city's logo on it and they drive a North Port Neighborhood Development vehicle. Anyone with less gear or demanding payment should get a door slam and be reported, Raducci said.
Typical Due Diligence in Purchasing a Business
If you ever been involved in purchasing a business, you likely know of the concept of "due diligence." If there is physical plant or inventory involved, you would be foolhardy if you didn't inspect the property, equipment and inventory. Certainly nobody would buy an ongoing business without looking at the books, and going over the numbers with their accountants. Then, of course, once there was a level of comfort with the physical plant, equipment and the books (and, of course, the purchase price and terms), you would take the deal to your lawyer and have your lawyer draw up a purchase and sale agreement with appropriate representations by the seller as to the accuracy of the information provided.
Consider that the transition of a developer-controlled condominium association or HOA is in many ways akin to the purchase by the unit or lot owners of a business, often times a very big business.
There is physical plant transferred certainly. Assets, financial records and audits are supplied. The incoming Board of Directors is responsible for all of the duties and responsibilities for operation that the exiting Board was responsible. What's the difference? Little due diligence.
Sure, the owners may have had a seat on the developer Board. But for most developments, that lone owner representative was left out of the loop on pertinent information and was outvoted on the key decisions regarding operation. Individual owners may have requested information as they were entitled to by Chapters 718 or 720, but most often complete information was not provided. As far as engineering or accounting review, rarely do transition committees raise money voluntarily to secure engineering or accounting studies pre-transition. As far as legal, some counsel advise transition committees gratis, but primarily the advice concerns how the transition process is supposed to work.Typical Due Diligence in Taking Over Control of a Condo Association or HOA
The reality for newly transitioned condominium associations and HOAs is that the new Board has limited information upon purchase ("transition") about this business ("community") it now has the responsibility to operate. It is not too late for "due diligence" however. The incoming unit or lot owner Board of Directors by statute (Chapters 718 and 720) has a fiduciary duty to the owners. To meet this duty, consider that it is incumbent upon the incoming Board of Directors to perform after purchase (transition) the due diligence that in a commercial setting would have been done pre-purchase.
It is in the context of "due diligence" that forensic engineering and accounting investigations should be ordered, general counsel retained to assist in getting operations and compliance in order, and turnover counsel retained to assist in the choice of the forensic engineering and accounting firms, determining the scope of the investigations, and pursuing relief from the seller ("developer").Can Due Diligence Wait?
Can the due diligence wait, after all we the incoming Board of Directors has a lot on its plate the first year without having to spend time and money "looking under the hood?" The simple answer is that it really can't wait. First, with repair and maintenance of the common property being the foremost obligation of the association, a timely engineering study is an essential tool for the Board to perform its oversight, planning and budgetary functions on repair and maintenance. Second, warranty periods and statutes of limitation affecting potential claims may be at risk of expiring. For condos, the main developer warranty is tied for projects with buildings more than three years old to discovery of defects within one year of turnover.Summary
Condominiums and deed-restricted developments are big businesses, sometimes multi-million dollar businesses. By statutory and documentary design, until sale ("transition"), the seller ("developer") holds all of the cards. It is only in the period after sale ("post-transition") can the incoming Board of Directors take steps to ascertain the cards the owners have been dealt. This is after-the-fact due diligence, but given this design, the Legislature and the courts have provided associations with recourse if the developer has left the community with deficits, be they infrastructure, regulatory, building or financial.
These days Floridians find themselves sprinting towards hurricane season with the unfamiliar specter of a global pandemic still nipping at their heels. For condominium unit owners still practicing vigilant self-distancing, an association's need to enter into their unit may seem like a giant "not happening!" But is it? What are an association's duties and powers when it comes to entry into a condominium unit during the COVID-19 crisis?
The Association's Maintenance and Repair Obligation
By now it shouldn't come as a surprise to any property manager or board member that a condominium board has both statutory and contractual duties relating to the maintenance and repair of the community's common elements. Florida courts have stressed that an association board acts at its distinct peril in neglecting these duties. Not only does the board face the possibility of being directed by a court to take action, or the association being assessed damages for its failure to act, but under the Florida Condominium Act an association faces the prospect of having to reimburse a unit owner's attorneys' fees and costs in securing relief against a recalcitrant association. See Coronado Condominium Association, Inc. v. Scher, 533 So. 2d 295 (Fla. 3d DCA 1988).
Entry into Units – Standard Authority
There are times where discharging its maintenance and repair obligations requires an association to enter into an owner's unit. These instances are always ripe for disagreement. The Florida Condominium Act provides statutory authority on the association's side in the right circumstances. Fla. Stat. 718.111(5) allows a condominium association to enter a unit during reasonable hours in order to maintain or repair that which the association has a duty to maintain or repair, "or as necessary to prevent damage to the common elements or to a unit or units."
Despite this statutory ground for unit access, it is worth noting that Florida courts have construed these grounds narrowly. Recent appellate court decisions have looked for both: a) independent contractual authority to enter within the governing documents; and b) that the board's decision to enter is supportable as a reasonable business judgment under the circumstances. See, e.g., Small v. Devon Condominium B Association, Inc., 141 So. 3d 574 (Fla. 4th DCA 2014).
The Florida Condominium Act also vests boards with special powers during times of declared states of emergency. Fla. Stat. 718.1265(j). If an official state of emergency is declared, a condo board can authorize entry into a unit in order to "mitigate further damage" by arranging "for the removal of debris, or to prevent or mitigate the spread of mold or mildew, or by removing wet drywall, insulation, carpet cabinets or other fixtures." No doubt these approved mitigation efforts are directed squarely at hurricane events. However, the declaration of a state of emergency - even as to a global pandemic – will provide a board with broad statutory cover for acting decisively to mitigate concurrent storm or water-related damage to other units and common elements.
How Does COVID-19 Exposure Fit Into the Analysis?
Even without a declared state of emergency and enforced stay-at-home restrictions, owners may still be extremely reticent to allow strangers into their homes, and boards may be equally concerned about the safety of their employees and agents, or the legal ramifications of exposing people to the COVID-19 virus. These are valid concerns; yet, at the proverbial end of the day, a condo board must always act reasonably to protect, maintain and repair common elements and other units. State of emergency or not, as we approach the storm season in Florida many associations may find themselves in the unenviable position of having to risk COVID-19 exposures in performing otherwise reasonable actions to secure common property. It will be incumbent upon boards to ensure that their decisions are well-founded, documented, and otherwise reasonable under the circumstances.
Common sense should guide a board in implementing an entry into an owner's unit. As much notice as is practicable should be given. CDC guidelines relating to social distancing and disinfecting should be followed by those entering the unit. Unit owners should be pre-informed on exactly what precautions will be taken to minimize exposure risk. A savvy condo board would do well to establish and communicate these emergency protocols now, rather than hastily cobble them together immediately before, during, or in the aftermath of a weather catastrophe or plumbing leak.
Despite the novel and significant risks posed by the current coronavirus pandemic, COVID-19 should be appreciated as an existing condition to be protected against by following CDC guidelines; it should not be viewed as an excuse for avoiding reasonable protective action against imminent or further property damage.
Understand how Covid-19 restrictions can result in a repair contractor claiming more money or more time to complete under a Force Majeure ("Act of God") clause of the contract.